Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — DEFENCE

Nuclear Tests (Compensation)

Mr. Ron Davies: asked the Secretary of State for Defence if he has any plans to review the provisions under which former service personnel could pursue a claim following injury in United Kingdom nuclear tests.

Mr. Terry Lewis: asked the Secretary of State for Defence whether he has plans to seek to compensate ex-service men and women for ill-health arising from nuclear tests.

The Minister of State for Defence Procurement (Mr. Norman Lamont): Section 10 of the Crown Proceedings Act 1947, which bars such claims, is currently under review. However, it is open to former service personnel who believe that they have suffered injury which is attributable to service to apply to the Department of Health and Social Security for a war disablement pension. Nevertheless, it remains the Government's view that no one was harmed as a result of exposure to ionising radiation from the United Kingdom test programme. The matter will be reviewed when the results of the National Radiological Protection Board survey are available later this year.

Mr. Davies: Is it not clear, particularly as a result of the findings and recommendations of the Australian Royal Commission, that significant numbers of British ex-service men who served in the Pacific were unnecessarily exposed to nuclear radiation? Is there not a clear moral responsibility on the Government to waive the provisions of section 10 to allow compensation to be paid to those people whose health is suffering?

Mr. Lamont: There were 202 different conclusions in the report, and they require careful study. We have had some meetings at official level with the Australian Government. Later this month the Foreign Secretary and I will meet Senator Evans, the Australian Minister of Energy and Natural Resources, and we shall discuss the findings of the commission.

Mr. Lewis: Is the Secretary of State aware that there is a stong feeling among ex-service men that the NRPB submission is just another delaying tactic? If the Government are serious about the matter, as they should be, they should initiate their own commission of inquiry, as the Australians have done.

Mr. Lamont: The Government are serious about the matter. I hope that the NRPB survey findings will be available in the autumn. I take the matters that have been raised extremely seriously, but in order to assess the possibility of illness and death resulting from the tests we must have a proper survey of those who were involved in them.

Mr. Holt: My hon. Friend may take note of whether our ex-service men have nuclear disease, but is he aware that the council in Middlesbrough will not employ people who were long-serving personnel in our armed forces?

Mr. Lamont: I have listened to what my hon. Friend has said, and that seems most extraordinary.

Mr. Alton: In view of what the Minister has said about a proper survey, why does he not extend the NRPB survey to examine the genetic effects on the children of service men who were involved in the tests?

Mr. Lamont: The NRPB survey could be extended in many ways, but, as it is presently defined, it will enable us to establish whether people were adversely affected by the tests. We can then decide on the appropriate action.

Mr. Harrison: Will the survey, when sending a questionnaire to the families of the 20,000 personnel, both military and civilian, take into account the fact that many of them are dead? I have been looking into the matter, and I am not satisfied. Is the Minister satisfied with the survey as it has been carried out?

Mr. Lamont: A questionnaire is not being sent to the 20,000 people. Obviously information is available about the health records of those people, and that is what the survey will be based on. The right hon. Gentleman has tabled questions about that before, and I have taken them seriously. I am satisfied that the survey will give us the information that is necessary to reach a proper and considered conclusion. We do care about the matter.

Strategic Defence Initiative

Mr. D. E. Thomas: asked the Secretary of State for Defence what military spin-off he expects from the strategic defence initiative research; and if he will make a statement.

The Secretary of State for Defence (Mr. George Younger): I have nothing to add to the statement that my predecessor made to the House on 9 December.

Mr. Thomas: Does the new Secretary of State for Defence, whom I am sure we all welcome to the Dispatch Box, agree with the view of the United States Secretary of Defence that deterrence is a mutual suicide pact? Does he agree with him also that the world needs to be released from the shadow of nuclear destruction? If so, does he believe that the pursuit of research into verifiable measures of nuclear disarmament is preferable, cheaper, and likely to be more effective than the pursuit of the technological fixed dream of SDI?

Mr. Younger: I am grateful to the hon. Gentleman for his good wishes. The point is that the research will continue in any case, and the fact that we in Britain have an opportunity to take part in it can only be to our advantage. It remains the main part of our policy to pursue the reduction of armaments in every way we can.

Sir Antony Buck: I congratulate my right hon. Friend on his first appearance at the Dispatch Box as Secretary of State for Defence and wish him a long and happy tenure of office in that job. Does he agree that the spin-offs from projects such as this are incalculable, and that the spin-offs are always much more considerable than the accepted wisdom?

Mr. Younger: I am grateful to my hon. and learned Friend for his welcome, which I greatly appreciate. It is important for us all to realise that the spin-off effects are not merely in the area to which they are addressed—that is to say, research into systems in space—but that they have important connotations for conventional defence and civilian use.

Mr. James Lamond: When the research eventually comes to an end, will we be given the complete results? Will we be treated by President Reagan with the same generosity as he has promised to treat the Soviet Union?

Mr. Younger: It will be a long time before the reasearch upon which we are embarking in conjunction with the United States comes to any sort of an end. At that time, it will be for all the Governments concerned to consider what should be published.

Mr. Dickens: Is there any chance, however remote, that SDI research will lead to helicopters being obsolescent?

Mr. Younger: I do not think that the research is addressing itself to that question.

Mr. Denzil Davies: I welcome the right hon. Gentleman to his office of Secretary of State for Defence. He will know, as the House knows, that he is the fourth incumbent of that office in a period of about five and a half years, and, with such an attrition rate, I hope that he has cleared all his answers with the Cabinet Office.
Dare I ask him whether the view that he is expressing on SDI is a collective view, or an ad hoc view, by the Government? Does he agree with what President Reagan said in his famous star wars speech, that nuclear weapons were immoral, or do the Government agree with the critics, including the Foreign Secretary, who see star wars as an escalation of the arms race, destabilising, and having turned NATO's nuclear strategy completely upside down?

Mr. Younger: I am grateful to the right hon. Gentleman for his kind words, which I greatly appreciate. He said that I am the fourth incumbent of this office, but in my last office I was the only incumbent for six and a half years, so perhaps there is a balance there.
All the answers that I give will be Government policy generally. I agree with what President Reagan has always made clear, that this is a matter of pursuing research that will be pursued anyway, and it is most important that we should have a part in it.

Mr. Meadowcroft: asked the Secretary of State for Defence what evaluation his Department has made of the feasibility of the strategic defence initiative as a defence system.

Mr. Beith: asked the Secretary of State for Defence what assessment Her Majesty's Government make of the attainability of the objectives originally set by President Reagan for the strategic defence initiative.

Mr. Younger: The United States SDI is a long-term research programme intended to investigate the technical

feasibility of defences against ballistic missiles. It would be premature at this stage to form judgments about the outcome of the research.

Mr. Meadowcroft: I associate the Liberal Bench with the welcome to the Secretary of State and express the wish that he is as helpful inside the Cabinet as his predecessor now is outside the Cabinet. Given that the bedrock of the deterrence theory, according to its adherents, is the ability of both sides to inflict devastating damage, and that the aim of SDI is to make one side invulnerable to that devastating damage, does not SDI undermine the theory of deterrence?

Mr. Younger: I am grateful to the hon. Gentleman and his colleagues for their good wishes, which I greatly appreciate.
As for his other point, as my right hon. Friend has made very clear on numerous occasions, one of the principal objectives of the SDI research programme is to enhance, not to reduce, deterrence. I hope very much that it will do that.

Mr. Beith: Did not the President of the United States make it quite clear that his basis for accepting SDI was that it could render nuclear weapons obsolete by creating an impenetrable shield against all offensive weapons? If that cannot be attained—and nobody in the United States now seems to believe that it can—does not SDI become an expensive, unnecessary and provocative addition to our deterrent?

Mr. Younger: That is the whole purpose of embarking upon research in the first place. Until that research has been brought to fruition, which will take a long time, we shall not know whether it is capable of achieving its main objective, which is to devise a system that will make nuclear weapons obsolescent. I should have thought that all of us would approve of that objective.

Mr. Wilkinson: I, too, congratulate my right hon. Friend upon his appointment. Does he agree that the more awesome the weapons of mass destruction that are ranged against us by the Soviet Union, the more important it is for scientists on this side of the Atlantic, as in the United States, to carry out research into potential defences against them?

Mr. Younger: I strongly agree with my hon. Friend that it is important from those points of view. When one adds to that the fact that this research will take place somewhere anyway, surely all of us who have any interest in this country's high technology industry should be glad that we are to have some part in it.

Mr. Maclean: Is it not a fact that for many years the Soviet Union has had a massive SDI programme of its own, killer satellites being merely one example? Is it not misleading for Opposition politicians and others to give the impression that the West and NATO are breaking new ground by taking the SDI initiative? Surely we should be doing this in order to keep up with what the Soviet Union has been doing for years.

Mr. Younger: I agree with my hon. Friend. The Soviet Union has indeed been carrying out investigations in this area for a very long time. I am quite baffled by the theory that seems to be put forward by the Opposition that, despite that, we ought to have nothing to do with it. That seems to me to be a suicidal course.

Mr. Tony Lloyd: Is the Secretary of State aware of United States studies which suggest that laser technology, which can be used as an anti-ballistic missile system, can also be used as an offensive system to create fires within Soviet cities? Does the Secretary of State accept that if that is the case, those weapons, far from enhancing deep deterrence, are very dangerous, because they will escalate the production of offensive armaments?

Mr. Younger: I have seen newspaper reports to that effect, but at this stage there is no hard evidence that research has established any such fact. If it did, it would be a new matter that would have to be considered afresh.

Mr. Chris Smith: Has the new Secretary of State for Defence yet had a chance to read the letter—not marked confidential—that was sent to the Prime Minister in October 1985 by 60 leading advanced information technology scientists at Imperial college, saying that any conceivable star wars technology was not feasible? If the Secretary of State has read that letter, what is his response to it?

Mr. Younger: I have heard about that letter, but I have not yet had a chance to read it. I shall certainly study it with care.

European Fighter Aircraft

Mr. Robert Atkins: asked the Secretary of State for Defence if he will make a statement on the current position on the European fighter programme.

Mr. Norman Lamont: As I explained to my hon. Friend on 22 October last, excellent progress has been made since agreement was reached in the summer between the United Kingdom, Germany, Italy and Spain to proceed with the further definition and refinement of the European fighter aircraft programme. Work on the project definition phase is now well under way and a report is expected from industry next summer.

Mr. Atkins: I thank my hon. Friend for his reply. In the interests of my constituents and many others who are working on this programme, will my hon. Friend take this opportunity to confirm that other events in the aerospace industry will not make any impact upon this programme, which is so important to jobs and to European co-operation in industry and defence?

Mr. Lamont: I can confirm that. The Government remain firmly committed to carrying on with the EFA project definition. We believe that collaboration in this area is extremely important.

Dr. Hampson: Does not this programme offer the greatest across-the-board possibilities and opportunities for British industry that we have seen for generations? Does not the logic of a hands-off approach to our defence contractors mean that British Aerospace should support an American licence to build an American fighter?

Mr. Lamont: The Government do not adopt a hands-off approach to defence procurement. The Government wish to be assured that their requirements can be met from the private sector. As my hon. Friend knows, the Government were closely involved in this matter.
As my hon. Friend said, the project offers tremendous opportunities for British industry, particularly in subsystems and components.

Mr. McNamara: With regard to the other European venture that has collapsed, or appears to be collapsing, with the help of the Government, is it not in the subsectors—avionics and other matters—that British industry will be hurt? Is not one of the consequences of the Government's present attitude that British firms working on those systems will be badly bitten, as Sikorsky supplies them? Why should the European national armaments directors believe the Government any more? After all, we have only a memorandum of understanding; we do not even have a firm contract.

Mr. Lamont: I am strongly tempted to answer the hon. Gentleman, but that matter does not arise out of the question on the Order Paper.

Lord James Douglas-Hamilton: At what stage does my hon. Friend expect that contracts for work on the European fighter will be awarded to suppliers in different countries?

Mr. Lamont: The evaluation of the project definition phase will not be available until next summer. Contracts will follow thereafter. Of course, some work is being done at the moment.

Strategic Defence Initiative

Mr. Dalyell: asked the Secretary of State for Defence if he will make a statement on his Department's discussions with members of the department of artificial intelligence and other scientists at the University of Edinburgh on research under the strategic defence initiative.

Mr. Younger: Ministry of Defence officials met Dr. Thompson from the department of artificial intelligence, Edinburgh university, on 20 December to discuss various aspects of the strategic defence initiative.

Mr. Dalyell: The Secretary of State will know from his previous incarnation that the department of artificial intelligence in Edinburgh is one of the most distinguished in the world. How, then, does he answer the point put by Dr. Henry Thompson and his colleagues who say, as do scientists at Imperial college, that the scheme can never come to fruition? In the absence of a spare planet, which the Ministry of Defence presumably does not have, how is the testing to be done? Unless there is a spare planet, there is no way that the scheme can be tested.

Mr. Younger: The discussions with Dr. Thompson have been fulfilled, as my predecessor undertook that they would be. Dr. Thompson and his colleagues are entitled to their view, but that does not alter the fact that the research will go on in any case, and if this country is involved there will be considerable spin-off effects, both civilian and military. We should be foolish to turn our backs on it.

Mr. Ashdown: Is the right hon. Gentleman aware that I gather that the same scientists have suggested that the computer system to run the SDI would have to be hundreds of times more powerful than the current NORAD early warning system? Is he aware that that system crashes every 30 seconds on average and has never worked for longer than half an hour? Why is the Secretary of State diverting a precious part of our human resources in computer research to this ridiculous red herring?

Mr. Younger: The point of the research is to find out whether the scheme is feasible and, if so, how. We should bear in mind that views are strongly held by individuals all over the place and they do not necessarily affect the views of a university or a department as a whole.

Submarines (Orders)

Mr. Douglas: asked the Secretary of State for Defence if he will make a statement on the placing of orders for conventional and nuclear submarines in British shipyards.

The Parliamentary Under-Secretary of State for Defence Procurement (Mr. John Lee): Orders were placed on 3 January 1986 for three Upholder class submarines and one Trafalgar class SSN. A tender has been received for the first of the Trident boats and is being evaluated. The precise order date has yet to be determined.

Mr. Douglas: I am disappointed that the Secretary of State is not answering this question. When he was Secretary of State for Scotland he gave a clear indication during Scottish Question Time, just before the recess, that a Scottish yard would receive a submarine order. We in Scotland are extremely disappointed that the Ministry has left itself open to a monopolistic supplier, which is conducive to the privatisation of that yard. Will the Minister give us an undertaking about what value we can put on the Trafalgar House bid for some of the Trident steel work?

Mr. Lee: The hon. Gentleman is very wrong in his first suggestion, and totally wrong in his second suggestion. The placing of the order had nothing to do with the privatisation programme.
The competition was a great success. There was a saving of about £20 million—about half because of batch ordering and about half because of the competition. We hope and believe that at least one other yard will be able to compete for future SSK orders.

Mrs. McCurley: I acknowledge that the acceptance of the lowest tender for any contract is a good principle, but, in the case of Cammell Laird, will my hon. Friend carefully scrutinise the rather over-optimistic prices that have been offered for the award of the submarine contract? Will he carefully study that contract over the next few years?

Mr. Lee: I understand my hon. Friend's deep anxiety over the Scott Lithgow yard, but all tenders are and will be carefully scrutinised. Cammell Laird won the competition on a true and open basis.

Dr. Godman: Is the Minister aware that on 26 November 1985 his hon. Friend the Minister of State for Defence Procurement told the House that it was the Government's intention that there should be a number of submarine yards and that Vickers had a monopoly not of conventional but of nuclear submarines? Does he agree, in the light of the placing of the order with Vickers, and hence the conferment of monopoly powers on that company, that that decision sharply contradicts what the Minister of State said on 26 November?

Mr. Lee: With respect, while I understand the hon. Gentleman's anxiety, that does not contradict what my hon. Friend the Minister of State said. I repeat that; there

has been competition for the SSK orders. We believe that there will also be satisfactory competition in the future, so there is no question of a monopoly.

Mr. Forth: Will my hon. Friend assure the House that in the placing of such orders, and, indeed, orders for all military equipment, overriding importance will be attached to quality and price and that there will be no artificial constraints placed on orders, geographically or in any other way?

Mr. Lee: I can assure my hon. Friend that competition is very much the order of the day. Nevertheless, there are times when we have to take into account wider and relevant factors.

Mr. O'Neill: The Minister must appreciate the widespread disappointment felt in Scotland, which the Secretary of State echoed, when the announcement was made. Deepening suspicion and cynicism are felt because everyone knows that this is merely a matter of fattening up Vickers before privatisation. There is the added cynicism that the price that the people at Cammell Laird were able to quote was possible because they were able to obtain information from Vickers at Barrow about the target figure that they would have to meet. There is little chance of competitive tendering if there is only one supplier, because the other one will be on its last legs if orders are not provided.

Mr. Lee: Most of the hon. Gentleman's suggestions are, with the greatest respect, unworthy of him. There is no question of placing the orders with Cammell Laird and Vickers because of the privatisation programme.

Mr. Wilson: In view of the insignificant share of defence orders that Scotland received in the last announcement, has the Minister's right hon. Friend issued instructions that steps should be taken within the Ministry of Defence to find more work for Scotland because of our substantial unemployment problem?

Mr. Lee: My right hon. Friend plainly understands the needs of Scotland, because of his former position, but he will be completely open and fair-minded in the placing of future orders.

Nimrod Programmes

Mr. Soames: asked the Secretary of State for Defence when the Nimrod programmes will be completed.

Mr. Norman Lamont: The Nimrod maritime reconnaissance mark 2 programme will be completed this year. The completion date for the Nimrod airborne early warning mark 3 programme will depend on the outcome of the current negotiations with GEC Avionics Ltd. and on consequent decisions as to the best way to take the project forward.

Mr. Soames: In view of its disgraceful history and the length of time that this programme has taken to complete, what sanctions does my hon. Friend have in mind if the contractors fail to meet the due date this time?

Mr. Lamont: It would not be right for me to disclose what we might do, because we are negotiating with GEC on this matter. We wish to obtain a fixed price contract for the completion of the project to an acceptable operating standard and also within a short time.
We entirely agree with my hon. Friend that the progress of this project has been profoundly unsatisfactory.

Mr. Robert C. Brown: Does the Minister honestly believe in his original answer that the programme will be finished this year?

Mr. Lamont: I think that the hon. Gentleman misheard my answer.

Mr. Beaumont-Dark: Does my hon. Friend agree that instead of concentrating on spoiling some other project at Westlands, GEC would be better advised to concentrate on giving the shareholders and the country better value for the hundreds of millions of pounds that the Nimrod contract has so far cost, without the aeroplane flying successfully? Has not the time come for the company to concentrate on giving taxpayers value for what they have paid for?

Mr. Lamont: As is well known, this project is nearly five years late. The original cost at 1986 prices was some £856 million. Already, £874 million has been spent on this project and it does not work to a satisfactory standard. We take this matter seriously, but it is one that we shall have to sort out in negotiation with the company. It is in no doubt about the seriousness with which the Secretary of State and myself regard this project.

Helensburgh (Incident)

Mr. Janner: asked the Secretary of State for Defence in what circumstances a Ministry of Defence decontamination squad attended the scene of the accident involving a military convoy at Helensburgh on 20 June.

Mr. Stanley: In relation to the circumstances of the accident to which the hon. and learned Gentleman refers, I cannot add to the reply that I gave to the hon. Member for Edinburgh, East (Mr. Strang) on 15 July last year.

Mr. Janner: Accepting, as presumably the Minister does, that this transport was carrying nuclear weapons, that there was an accident and that the decontamination squad was available, what reassurance, if any, is the Minister prepared to give to the public that if there is an accident involving nuclear weapons en route, satisfactory provision will be made to deal with a potentially dangerous situation?

Mr. Stanley: As the hon. and learned Member and the House know, it is the policy of this Government, like that of all our predecessors, neither to confirm nor to deny the presence of nuclear weapons. On the generality, I can assure the hon. and learned Gentleman that under successive Governments there have been detailed arrangements on a contingency basis for responding to any nuclear accident that might occur.

Type 23 Vessels

Mr. Merchant: asked the Secretary of State for Defence if he will make a statement on future orders for type 23 ships.

Mr. Lee: Tenders have been received for the next three type 23 frigates and these are being evaluated, but the precise size and timing of any orders have yet to be determined.

Mr. Merchant: In view of the excellent record of the defence industries on the Tyne, will my hon. Friend give urgent attention to providing orders for Swan Hunter and other yards on the Tyne? Will he also take the opportunity

to look closely at the Vickers Valkyr APC, which is manufactured by Vickers on the Tyne, and which could provide excellent service for the Army?

Mr. Lee: I shall certainly look into the latter point. On my hon. Friend's first point, I have to say that the Ministry of Defence is not in the business of providing orders for any particular yard. I emphasise that these days we place orders on the basis of competition, and in our warship yards, fortunately, we have substantial competition.

Mr. Campbell-Savours: Are any aspects of the original decision to reject the S90 short, fat ship in favour of the type 23 officially secret—apart from the weapons system and information on the weapons system?

Mr. Lee: The hon. Member asks about the S90. All the options were exhaustively examined in 1983, and I have nothing to add to the statement that I made to the House on 1 November 1983. The way for the Ministry of Defence to make sure that it gets value for money is to proceed with the design that it has, and we shall accordingly be starting to order follow-on type 23 ships this year. I cannot comment on Admiral Hill-Norton's report until it is received and I have had an opportunity to study it. My Department has offered assistance to the committee.

Mr. Colvin: Will my hon. Friend confirm that, following receipt of the Hill-Norton report and his study of it, he will carry out a review of the procedures under which decisions on ship design are made?

Mr. Lee: I take my hon. Friend's request.

Mr. O'Neill: Will the Minister confirm that the Government are still committed to a 50-warship navy? The present rate of ordering means that we will be far short of that number by the end of the decade unless something happens quickly.

Mr. Lee: I can assure the hon. Gentleman and the House that there has been no change in the Government's intention to maintain a force of about 50 escort vessels.

Mr. Wallace: Does not the apparent delay in placing the orders for type 23 frigates and the delays in buying essential new equipment for other services, which is leading to a drop in morale in the services, indicate that there is a need for an overall defence review? Will his right hon. Friend, who is a new broom in the Ministry of Defence, set about instituting such a review?

Mr. Lee: With great respect, I do not know how the hon. Gentleman can say that. Ten days or a fortnight ago we placed about £1 billion worth of naval orders.

Mr. McQuarrie: Although I accept what my hon. Friend has said about competition for the type 23, may I ask whether he agrees that the efficient and skilled work force at Scott Lithgow in Gourock on the lower Clyde must be considered in the context of maintaining it if we are to develop Ministry of Defence requirements in the years to come?

Mr. Lee: I understand that, but we have substantial existing capacity in our warship yards. That is the reality under consideration.

Nuclear Weapons (Policy)

Mrs. Clwyd: asked the Secretary of State for Defence whether Her Majesty's Government's policy on the deployment of nuclear weapons is still based on the concept of mutually assured destruction.

Mr. Stanley: Her Majesty's Government's policy on the deployment of nuclear weapons is based on the strategy of deterrence, which has preserved peace with freedom in western Europe for more than 40 years.

Mrs. Clwyd: Is the Minister aware that as recently as October Mr. Caspar Weinberger stated that mutually assured destruction had not kept the peace for 40 years and would not do so in the future? If the United States no longer believes in that policy, is it not surprising that this Government do?

Mr. Stanley: I assure the hon. Lady that the United States believes as firmly in the policy of deterrence as do this Government. I have some difficulty in noting that the hon. Lady cannot accept the policy of deterrence, given the fact that Labour Governments engaged in an expensive secret programme to enhance the United Kingdom's use of the nuclear deterrent.

Mr. Stokes: Will my right hon. Friend totally ignore the views of the hon. Member for Cynon Valley (Mrs. Clwyd), which are utterly rejected by the vast majority of the British people and will ensure the defeat of the Labour party in the next election?

Mr. Stanley: I assure my hon. Friend that I regard his comments as much more representative of the views of the British people than the comments of the hon. Member for Cynon Valley (Mrs. Clwyd).

Mr. Strang: Does the right hon. Gentleman accept that the deployment of highly accurate counter-force weapons, such as Trident, is destabilising because it creates the fear on the other side that such weapons might be used in a first strike and thus increases the chance of nuclear weapons being used sooner rather than later in a crisis?

Mr. Stanley: I see nothing destabilising in preserving the credibility of the deterrent. That policy was accepted by the Labour Government as well.

Experimental Fighter Aircraft Programme

Mr. Stern: asked the Secretary of State for Defence whether he is satisfied with the progress of the experimental fighter aircraft programme; and if he will make a statement.

Mr. Norman Lamont: The experimental aircraft programme is a technology demonstrator programme which will give us practical experience in the integration of the wide range of new technologies required for new, sophisticated combat aircraft.

Mr. Stern: In view of my hon. Friend's welcome reply earlier to the effect that contracts for part of this programme are likely to come up next summer, will he confirm that all the resources of his Department will be made available where necessary to those British companies which have already been involved in the groundwork, to ensure that they are not negotiated out of a substantial programme?

Mr. Lamont: I can certainly give my hon. Friend that assurance. We have meetings constantly with British industry and invite industry to tell us how we can help further in this programme.

Mr. McNamara: May I refer to the question that I put before? How can our European partners who will be engaged with us in developing the European fighter, which is based on our experience in EAP, depend upon the Government, following their shameful treatment on the helicopter issue?

Mr. Lamont: Our partners can depend absolutely upon the Government. I have already given the commitment that we are thoroughly in favour of continuing with EFA.

Regular Army Reserve

Mr. Marlow: asked the Secretary of State for Defence what training he intends for the Regular Army Reserve in 1986.

Mr. Stanley: We are planning for up to 500 Regular Reservists to participate in the major BAOR field training exercise later this year. In addition, the new scheme whereby Regular Reservists in their third year of liabililty are invited to participate in one week refresher training courses at various locations throughout the United Kindgom will be continued during 1986. We shall continue to examine ways of providing further cost-effective training opportunities for those with a Regular Reserve commitment.

Mr. Marlow: What deductions has my right hon. Friend made from the experiences of using the Regular Army Reserve on exercises Lionheart and Brave Defender in the past couple of years? Does he agree that this is an under-utilised resource that is highly cost-effective? Will he look to expand its use?

Mr. Stanley: I can assure my hon. Friend that we have concluded very favourably from the training opportunities that we have provided for the Regular Reservists. We are very glad that my hon. Friend participated in both exercises, Lionheart and Brave Defender. We shall continue to try to find ways to produce cost-effective opportunities for Regular Reservists to engage in more training.

Mr. Conway: Since the Regular Reservists report to Territorial Army sponsoring battalions, is my right hon. Friend happy that the expansion programme for the Territorial Army is on target and is ready to receive those Reservists?

Mr. Stanley: I am glad to be able to tell my hon. Friend that the expansion of the Territorial Army to our target of 86,000 by 1990 is at the moment well on track and that the Territorial Army's strength currently stands at 74,000, compared with only 59,000 when we came to office.

Land Disposal

Mr. Andrew MacKay: asked the Secretary of State for Defence if he will make a further statement on disposal of Ministry of Defence land.

Mr. Lee: It is the policy of the Ministry of Defence to dispose of land and buildings which are no longer required for defence purposes. Since 1979 the estate has been reduced by almost 28,000 acres.

Mr. MacKay: While I congratulate my hon. Friend on that reply, may I ask whether he is aware that many of us who represent constituencies in the south-east of England will welcome a further disposal of surplus defence land, which will reduce the pressure for housing development land in open countryside in our areas?

Mr. Lee: While I understand my hon. Friend's point, the fact is that, because of our expansion of the Territorial Army and of the cadet forces, together with the development of longer-range weaponry, we are looking to add to the training land for the Army. Obviously, however, when suitable opportunities arise—[Interruption.]—we shall continue to dispose of land.

Mr. Speaker: Order. These are important questions.

RAF Brampton (Fire)

Mr. Hanley: asked the Secretary of State for Defence what were the costs, probable causes and consequences of the fire at Royal Air Force Brampton on Wednesday 23 October.

Mr. Lee: The fire at Royal Air Force Brampton destroyed the main part of the headquarters building of Royal Air Force support command. This will be replaced at an estimated cost of £1·2 million for temporary accommodation, followed by approximately £4 million more for permanent accommodation. The inquiry into the cause of the fire is not yet complete, but there is no evidence that it was other than accidental. Operational capabilities are unaffected, although some minor administrative difficulties may be experienced until the headquarters organisation can be fully reconstituted in the new accommodation.

Mr. Hanley: Would my hon. Friend not agree that, after two serious fires in the past three years, costing millions of pounds, the security system ought to be more appropriate to the modern age?

Mr. Lee: We are always endeavouring to improve our security.

School Visits

Mr. Greenway: asked the Secretary of State for Defence how many service personnel are currently involved in information visits to schools; and if he will make a statement.

Mr. Lee: Some 155 service personnel are employed either in presentation teams, which can be made available to visit educational establishments, or as school or college liaison officers. In addition, members of the careers information field force staff of all three services make visits to schools from time to time as part of their more general responsibilities.

Mr. Greenway: Bearing in mind the fact that there are 30,000 schools in this country, not to mention a large number of colleges and universities, does my hon. Friend not think that that is an inadequate number to go round schools and other institutions to inform pupils what careers are available to them in the services and the role that our service personnel can play in the defence of our country?

Mr. Lee: Our service personnel do an excellent job. While one would like to have more people allocated to the task, there are manpower pressures.

Mr. Skinner: In view of the fact that the Secretary of State for Defence and his colleagues are up to their necks in business of one kind or another, if the Government find that they cannot allocate sufficient people to carry out a tour of all these areas, may I ask whether the Minister has approached the ex-Secretary of State for Defence, who, seemingly, will have more time on his hands in future, to do the job for them?

Mr. Lee: We are always grateful for contributions from the hon. Gentleman.

Military Schools of Music

Mr. Jessel: asked the Secretary of State for Defence if, pending the report of the Public Accounts Committee, he will make a statement on the new figures for the costing of military schools of music given in his evidence to the Committee on 4 December by the permanent secretary, Sir Clive Whitmore.

Mr. Lee: The group set up to implement the decision to establish the defence school of music at Deal reported in March 1985 that the estimated construction cost had risen from £5·8 million to £10·6 million. We are now examining the requirement for instruction and buildings in order to bring the cost down to the earlier estimate.

Mr. Jessel: As there is not now much difference between the cost of continuing with the present system and that of setting up a joint services' music school on the coast, will the Government examine carefully the report of the Public Accounts Committee when it is published, and reconsider the view of the previous Secretary of State for Defence, as the high standards of British Army bands, which are the envy of the world—[HON. MEMBERS: "Hear, hear."]—are linked inextricably with the first-class training they receive at Kneller hall, Twickenham?

Mr. Lee: My hon. Friend has obviously struck a welcome note. He has waged a tireless campaign for Kneller hall, and all credit to him. However, there is no change in our fundamental decision to go on a tri-service basis to Deal.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Pike: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be having further meetings later today.

Mr. Pike: Will the Prime Minister say why she remained silent about the letter from British Aerospace while the Secretary of State for Trade and Industry misled the House yesterday afternoon?

The Prime Minister: I do not accept that my right hon. and learned Friend misled the House. Indeed, he gave a clear explanation. As the hon. Gentleman is aware from answers that have been given many times by me, it is my practice not to publish exchanges with third parties, nor to reveal them, if they are marked "Private and strictly confidential." I hope that if anyone writes a letter to right


hon. and hon. Gentlemen which is marked "Private and strictly confidential", it will not be our practice to flaunt either its existence or contents on the Floor of the House.

Mr. Squire: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Squire: I thank my right hon. Friend for the support that the Government gave to me in reducing secrecy in local government. Will she now review the Official Secrets Act 1911 at national level, especially section 2, in the 75th year of its existence with a view to replacing it with a freedom of information Act?

The Prime Minister: I congratulate my hon. Friend on the passage of his Bill, which is due to come into effect shortly. As he knows, we had one attempt in 1979 at changing the Official Secrets Act because many people found it not to their liking, but that change did not obtain the consent of the House.

Mr. Kinnock: Will the Prime Minister now publish the Westland documents of 4 and 18 October? Since Sir Austin Pearce has now given his permission, will she also publish the letter that she received from British Aerospace yesterday?

The Prime Minister: My Office has been in touch with Sir Austin Pearce. It is my intention to consult him later today. I recognise the importance that the letter has assumed, and I shall consult him about publication.

Mr. Forth: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Forth: Bearing in mind the Government's responsibility for police planning in operational matters, has my right hon. Friend in her quieter moments had time to study the Metropolitan police report on the Tottenham riots? Is she as horrified as I am by the facts in it, and even more horrified at the reaction of mad Bernie Grant and the Haringey council, who accused the police of lying? Will she give the House an assurance that she and her Government will continue to support the police in their work throughout the country in protecting the innocent against the wicked?

The Prime Minister: Yes. I gladly give that assurance. The overwhelming majority of our citizens suppport the police in their difficult task and the very difficult judgments that they have sometimes to make.

Mr. Steel: May I revert to the question asked by the hon. Member for Hornchurch (Mr. Squire)? Does the Prime Minister remember several highly publicised prosecutions in the past few years of public servants for alleged breaches of section 2 of the Official Secrets Act 1911? As, in the past few days, there have been massive breaches of section 2 by members of the Government, will they be prosecuted, or will she declare the section dead?

The Prime Minister: The right hon. Gentleman is aware that prosecutions are not for me. He is also aware that we tried to amend the Official Secrets Act during 1979–80. It went through considerable debate. Many people wanted change, but we have not yet got agreement on what the changes should be.

Mr. Dover: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Dover: On the question of the Channel link, will my right hon. Friend assure the House that the Government will make a decision for one of the schemes as put forward, without changing it or the composition of any promoting group?

The Prime Minister: Negotiations about the Channel fixed link are continuing. I can only tell my hon. Friend that it is likely that we shall have to consider how far it would benefit users and be able to attract the finance necessary for the link.

Mr. Allen McKay: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. McKay: In reply to my right hon. Friend the Leader of the Opposition, the Prime Minister said that she would make public the letter to which he referred. Will she also give an assurance that she will make available to us the letters of 4 and 18 October?

The Prime Minister: I cannot necessarily agree to the latter part of what the hon. Gentleman said. I made it clear that my Office is in touch with Sir Austin Pearce. I intend to consult him later today about the possibility of the publication of those letters, because I recognise that they have become a major issue and that the House is likely to wish to see their publication in time for the debate tomorrow.

Mr. Moynihan: Is my right hon. Friend aware of NALGO's blacking of my constituency correspondence with Lewisham council's housing department whereby an unrepresentative minority trade union clique is abusing its extraordinary power over Lewisham council, completely without regard for the damage to the interests of my constituents? Does my right hon. Friend agree that what is at stake here is a matter of principle, which should be of the utmost concern to hon. Members on both sides of the House?

The Prime Minister: I fully agree with my hon. Friend and understand that genuine concern has been expressed in all parts of the House when the matter has been raised before. It is quite wrong for correspondence to be hindered in this way, and fundamentally against democracy. We all wish my hon. Friend well in ending this offence.

Mr. Flannery: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Flannery: If the Prime Minister has now been given permission to publish the contents of the letter from Sir Austin Pearce and British Aerospace, why does she need to have any further conversations with him? Is she worrying about something? Is there something that she has to hide? Why does she not publish the letter, having been given permission? There is no need for further discussion when the whole House—even those crowing behind her—want to know what is in the letter.

The Prime Minister: With respect, I think that I have probably answered this question several times, but let me repeat the reply. The letter was marked "Private and strictly confidential". It is my invariable practice not to reveal publicly such correspondence without the permission of its author. It will continue to be my practice, because I think that that is the right procedure. I hope that it will be the practice of other right hon. and hon. Members. I therefore indicated—I have not yet replied to the letter, my Office has been in touch with Sir Austin—that it is my intention to consult Sir Austin later today about the possibility of publication. I know that the House will wish to have it published by tomorrow. It is my intention to be in touch about that.

Mr. Whitfield: Does my right hon. Friend agree that perhaps the most encouraging aspect in the otherwise sorry state of the Westland helicopter company is the fact that she and her right hon. and learned Friend the Secretary of State for Trade and Industry regard letters that are marked as private and confidential as being private and confidential? Will she also agree with me that, if the right hon. prima donna Member for Henley (Mr. Heseltine)—[Interruption.]—had understood the meaning of the words private and confidential, his political career would not be in the ruins which it is today?

The Prime Minister: With regard to what my hon. Friend said about the letter, I have made clear my past practice, and I have made clear what I consider will be my future practice, because it is, I believe, the correct one.

Mr. D. E. Thomas: Will the Prime Minister take this opportunity unreservedly to condemn the excessive use of force by a member of a private security firm apparently to be funded by the Home Office, against the non-violent person, Sue Pitman, at Carmarthen last Saturday?

The Prime Minister: In general, of course, one always will condemn the use of unwarranted force. The only exception is self-defence. I do not know about the particular case and I am not able therefore to comment in detail on it. Perhaps the hon. Member will be in touch.

Mr. George Robertson: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Robertson: Is the Prime Minister aware that nine men have spent the last 10 days marching from Gartcosh steel mill in Scotland? Why will the Prime Minister not have the decency to meet them now that they are in London?

The Prime Minister: As the hon. Gentleman is aware, I met the representatives of the Scottish TUC when I was in Glasgow last autumn, and also the hon. Member for Monklands, West (Mr. Clarke). In addition, both the Secretary of State for Scotland and the Minister for Trade have offered to meet the people from Gartcosh. I do not see any further purpose in meeting them again.

Sir Kenneth Lewis: Will my right hon. Friend be replying to the letter that she has received from British Aerospace, and can she promise that, short of a simple acknowledgement, she will reply in public and not have it marked private and confidential?

The Prime Minister: That is one of the reasons why I am consulting before the reply goes.

Mr. Wareing: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Wareing: In view of the fact that the letter from Sir Austin Pearce was marked "Private and confidential", will the Prime Minister tell the House why she made the Secretary of State for Trade and Industry aware of the letter before he arrived at the House? Will she say at what time yesterday she received the letter and at what time the Secretary of State was made aware of its contents?

The Prime Minister: I saw the letter shortly before I came to the House—

Mr. Skinner: Time.

The Prime Minister: Well, shortly before. I had been presiding over an official lunch, of which the hon. Gentleman may well know, and it was not until that had finished and I had said farewell to the guests that I was made aware of the letter and so came to the House very quickly.

Mr. Amess: asked the Prime Minister if she will list her official engagements for Tuesday 14 January.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Amess: Is the Prime Minister aware that out of the 12 local authorities whose rates have been capped, five have not appealed against that decision? Does she agree that by not appealing against its rates being capped Basildon district council is admitting that it is extravagant in its expenditure?

The Prime Minister: I believe that is so. I also believe that many ratepayers will be very grateful for the rate-capping legislation that has passed through this House, which has curbed the level of rates that ratepayers would otherwise have had to pay.

Mr. Neil Thorne: asked the Prime Minister if she will list her official engagements for Tuesday 14 January

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Thorne: Will my right hon. Friend take the opportunity to consider the possibility of making an official visit to the Kingdom of Nepal within the next 12 months?

The Prime Minister: I should very much like to do so.

Lesotho (Supply Routes)

Mr. A. J. Beith: (by private notice) asked the Secretary of State for Foreign and Commonwealth Affairs what response he has given to the urgent appeal made to Her Majesty's Government by the Government of the Kingdom of Lesotho asking for help in dealing with the obstruction of supply routes by the South African Government.

The Minister of State, Foreign and Commonwealth Office (Mrs. Lynda Chalker): We view this matter very seriously indeed. We do not believe that the problems between South Africa and Lesotho can be resolved by coercion. We are making known to the South African Government our concern that the restrictions on border traffic should be lifted and that both sides should embark on a dialogue to resolve their differences without delay.

Mr. Beith: I welcome the Minister of State on her promotion to her present office and hope that she will exercise a good influence on Government policy. Does she recognise that as Lesotho—our Commonwealth partner—is entirely surrounded by South Africa and has to import virtually all its food, fuel and essential goods from South Africa, it cannot survive an economic blockade? Does she also realise that the delaying tactics being used by the South African Government are preventing virtually all the supplies from getting through? What pressure is she prepared to use to follow up the protest that has been made, in order to secure an end to the blockade? If pressure does not work, are the Government prepared to give practical help to ensure that in an extreme situation—the situation is becoming more extreme all the time—emergency supplies can be got into Lesotho? Does she agree that it is essential that this blockade should not be allowed to take away the independence of Lesotho?

Mrs. Chalker: I thank the hon. Gentleman for his initial remarks. We are very well aware of how dependent Lesotho is upon South Africa. We are also aware that blockading that country will have to cease. We shall look at ways of assisting them, and we shall shortly be replying to the letter that the Prime Minister of Lesotho, Chief Jonathan, addressed to the Prime Minister yesterday. We shall continue to urge the South African Government to respect fully the independence and territorial integrity of its neighbours, and we shall continue to urge on all countries in the region the need for dialogue and the suspension of violence, as called for in the Commonwealth accord.

Sir John Biggs-Davison: I welcome my hon. Friend to her new responsibilities. May I ask her what justification is offered by South Africa for the blockade? Since Lesotho is a partner in the Commonwealth, what contact have Her Majesty's Government in the United Kingdom had with other Commonwealth Governments about a resolution of the matter?

Mrs. Chalker: I thank my hon. Friend for his kind remarks. We know of no justification for the action. Of course, we have been in contact with our Commonwealth neighbours. The Commonwealth accord was agreed and we have kept in touch with those countries since. We shall continue with our partners in the Commonwealth to urge the South African Government to seek a solution through dialogue with neighbouring countries.

Mr. Tom Clarke: Is the Minister aware that the hon. Members who visited Botswana after the infamous raid on Gaborone regard the intimidation by the South African Government against neighbouring Commonwealth countries as entirely repugnant? Can we give an assurance to those Commonwealth countries that we find South Africa's invasion and intimidation unacceptable? Even if we cannot bring ourselves to impose sanctions, will we assure world opinion about our firm opinion?

Mrs. Chalker: Indeed. The hon. Member knows that we find the action repugnant. We deeply regret the land mine incidents and accompanying loss of life. We shall continue to condemn all acts of violence from whatever quarter they may come. We shall do all we can to ensure that the unacceptable position is brought to a swift and lasting conclusion.

Mr. Anderson: The Opposition warmly welcome the hon. Lady to her new post. A friendly, landlocked Commonwealth country has been blockaded since 1 January by a bullying neighbour. Have the Government been in close touch with the United States, since the appeal from the Prime Minister of Lesotho about the possible provision of commodities was also addressed to President Reagan? Is it the reading of the Government that this is part of a wider attempt to destabilise Lesotho politically and to force it to agree to a security pact? Are the Government aware that other front-line states adjoining South Africa are anxious about possible military intervention either by the South African defence forces or by agents of South Africa, as happened when nine opponents of apartheid were killed in Lesotho just before Christmas? What representations have been made by our ambassador in Pretoria to South Africa urging restraint in any further military adventures over its borders?

Mrs. Chalker: I thank the hon. Gentleman for what he said. We are in close touch with the Government of the United States. Tomorrow I shall be seeing Dr. Crocker on his return from South Africa and I shall raise the matter with him. The action is seen as an attempt to destabilise Lesotho. We understand the anxiety of other front-line states at what may be anticipated from the purveyors of violence, wherever they may come from. Representations will be made by Her Majesty's ambassador. I have no doubt that we shall be speaking about that shortly.

Roskill Report

The Secretary of State for the Home Department (Mr. Douglas Hurd): With permission, Mr. Speaker, I would like to make a statement about the report of the Fraud Trials Committee under the chairmanship of Lord Roskill which was published on 10 January. The House will recall that the committee was set up in 1983, well in advance of recent events, to consider ways of improving the conduct of criminal proceedings arising from fraud.
The Government are most grateful to Lord Roskill and his colleagues for producing with such speed a readable, thorough and radical report. It deals with a serious and urgent problem. We fully share the committee's concern that the perpetrators of serious fraud should be brought effectively to book. The report shows that the legal and administrative machinery for this purpose has been creaking badly. We are determined to bring about the changes in law, practice and attitudes which are necessary.
There are two reasons for this. First, the reputation of our financial institutions, and of the City of London in particular, needs the support of effective action against fraud. Secondly, there must be no escape for offenders simply because their offences are highly complicated or because they can employ large resources to cover them up—the enforcement of the law must be even-handed. Accordingly, the Government welcome the report as providing a basis for early legislation to achieve substantial reforms of the law in this field, and also for new administrative measures in areas where legislation is not required.
Responsibility for the investigation and prosecution of fraud is now shared by the police, the Director of Public Prosecutions, the Department of Trade and Industry and other agencies. Co-operation has been greatly improved in recent years, and permanent fraud investigation group arrangements have been in place since last January. The Roskill committee recommended an urgent examination of the need for a new, unified organisation. We accept the recommendation for such an examination, and it will be immediately put in hand by my right hon. Friend the Chief Secretary.
The committee has called for resources devoted to the pursuit of fraud to be expanded as a matter of priority. The Government are already taking steps to that end through the strengthening of the Department of Trade and Industry by nearly 200 new staff over the next few years, and the addition to the Director of Public Prosecution's Department of nine extra lawyers with support staff. We shall seek to draw in more people with the necessary skill and experience from the private sector on short-service appointments. In addition, the agency and the self-regulatory organisations to be set up under the Financial Services Bill will have their own resources for the investigation of fraud.
As regards the substantive law, my noble Friend the Lord Chancellor and I will be in touch with the Law Commission about its work on conspiracy to defraud. I shall seek the advice of the Criminal Law Revision Committee on early legislation to deal with the urgent problem of the limitations on the use of a charge of conspiracy to defraud to which the Roskill committee drew attention.
The committee made a number of recommendations on juries, including provision for certain complex fraud cases to be tried by a tribunal comprising a judge and two lay members, and for the abolition of peremptory challenges. We shall be consulting urgently about these important matters, and we shall listen with interest to the views which will be expressed in the House and the other place and in general public comment.
The committee's general approach on preparations for trial, the law of evidence and other matters would lead to significant improvements in the trial of fraud cases. The feasibility of certain aspects of these proposals will require further study and we shall need to give more thought to the details. Some of the recommendations may well be applicable in other sectors of the criminal law besides fraud.
To sum up, we have in this report an excellent basis for substantial and worthwhile legislation and administrative action. The report will be immensely helpful in shaping the Government's continuing fight against the insidious menace of fraud. For this, we are most grateful to Lord Roskill and his colleagues. It is now for us and for Parliament as a whole to do our part in carrying forward the work they have begun. I hope that my right hon. Friend the Leader of the House will be able to arrange for an early debate on the report.

Mr. Gerald Kaufman: The Home Secretary does not take this matter very far, but no doubt there will be a clearer sign of the Government's views in the forthcoming debate. He mentioned the proposed increase in staff at the Department of Trade and Industry and it is important to strengthen the defences of that Department against fraud.
We should like to hear more about increasing manpower in police fraud squads, about whose adequacy or otherwise there is great concern. Roskill's recommendations for a unified investigating force must be seriously considered. Investigation spread among 47 different organisations is a disorganised shambles. Similarly, court procedures are far too cumbersome and inadequate to deal with modern technology.
Whatever is wrong, I cannot agree with one proposed change. On behalf of the Labour party, I make it clear that we reject outright the Roskill recommendation that in complex cases the right to a jury trial could be removed. It is impossible to define complexity. Juries have been found adequate to deal with profoundly important and detailed espionage cases involving the nation's security and they are a valuable safeguard against the possibility of a prejudiced judge. The right to a jury trial has existed for many centuries and should not lightly be cast aside now.
Fraudsters are getting away with more than £3 billion a year. Much of that is from small savers who face the devastating loss of their life savings. Until now, the Government have shown a lack of determination in pursuing those fraudsters. Under this Government 20 times more people have been sent to gaol for social security benefit fraud than for Inland Revenue fraud. It is no wonder that on Saturday The Times said that there is a suspicion that the rich and well-connected can get away with it.
In his report Lord Roskill declares:
In the United Kingdom fraud is a growth industry.
He also says:
Fraud is posing a threat to London as a financial centre.


In the past, the City of London has been admired as the financial capital of the world, but unless the Government show more determination and less complacency there is a danger that it will acquire the deadly reputation of being the fraud capital of the world.

Mr. Hurd: I must say that I am a little disappointed at the grudging way in which the right hon. Gentleman has received the remarkable report and my commendation of it. Bearing in mind what he said towards the end of his statement I would have thought that he would have wholeheartedly welcomed the report and joined us in saying that it is right that it should give impetus to further action in tightening the net against fraud. We intend to put legislation into a Criminal Justice Bill that we are planning for the next session. I look to the right hon. Gentleman for more wholehearted support when we come to that than we have seen today.
The right hon. Gentleman asked about the police joint fraud squad. The Metropolitan and City company fraud department is the largest fraud squad in the United Kingdom with 190 officers engaged in company fraud work. As the right hon. Gentleman knows, I am now carrying out an urgent review to assess specific needs for further increases in the establishment of the Metropolitan police, and the size of the joint fraud squad will come into that.
I note the right hon. Gentleman's comments about juries in cases of complex fraud. In his report, Lord Roskill made a powerful case for a change but, as I said, I think that it is sensible for the Government to wait for the views of the House and opinion outside on that important change. The views of the right hon. Gentleman will not stand alone.

Sir Edward Gardner: Whatever may be the strength of the case for the abolition of trial by jury in complex fraud cases, will my right hon. Friend bear in mind the fact that any attempt to extend that radical principle to other crimes which can at present be tried by jury would be intolerable and unacceptable?

Mr. Hurd: I note what my hon. and learned Friend has said. The Roskill report made a powerful case for ring fencing that area. I do not believe that any action that follows from that aspect of the report should be regarded as capable of further extension.

Mr. Alex Carlile: I welcome many parts of the Roskill report, but does the Home Secretary not agree that juries have shown themselves peculiarly effective in trying cases of fraud? They have shown themselves willing to convict in 86·8 per cent. of the fraud cases brought before a Crown court. That is a higher percentage than convictions in other classes of case brought before the Crown courts.

Mr. Hurd: I note the hon. and learned Gentleman's views.
Before we concentrate on that recommendation, however, it is important to understand that it is flanked by a series of radical suggestions. For example, the report recommends changes in the law of evidence, which I know that Lord Roskill considers to be of prime importance. It also recommends changes in the disclosure of the case by both prosecution and defence and the institution of

preparatory hearings on a more systematic basis. In the committee's view, those are all crucial changes that need to be considered alongside the matter of the fraud trial tribunal.

Sir Peter Hordern: Has Roskill any recommendations to make about the position of accountants to a firm, when they think that fraud might have been committed? In future, should they owe their primary loyalty to their clients, as they have always done in the past, or should a duty be imposed upon them to reveal to the authorities where they suspect fraud is being committed?

Mr. Hurd: My recollection is that the answer to my hon. Friend's question is no, because that point did not lie within the committee's terms of reference.

Mr. Nicholas Brown: The Home Secretary glossed over the resources issue and said nothing about expertise, which was touched on in the Roskill report. What is the Government's attitude towards training in accountancy and new technology for judges and barristers and in particular for those whose job it is to investigate major frauds?

Mr. Hurd: The report has about 112 recommendations: there are many that I did not touch on, but they were summarised in part of my statement. I entirely agree about the importance of that part of the report. It applies to the police, who are my particular concern, as well as to the professions that the hon. Gentleman mentioned.

Sir Peter Tapsell: As the answers given yesterday by the Attorney-General about specific cases raised with him seemed to show, is there not a danger that, however much we may tighten legislation on fraud domestically, within the United Kingdom, some of the worst offenders will continue to escape because of the great inadequacy and slowness of the extradition procedures? In that context, will the Home Secretary ask our right hon. and learned Friend the Foreign Secretary whether an international initiative could be taken to improve the extradition procedures not only for fraud, but for terrorism and other crimes which are on the increase, which are facilitated by modern transportation?

Mr. Hurd: My hon. Friend is exactly right. I have already discussed the matter with my right hon. and learned Friend the Foreign Secretary. Fraud offences are extraditable, but, like my hon. Friend, I am concerned at the obstacles placed in the way of extradition of offenders from the United Kingdom. He will have noticed what Lord Roskill and his committee said about evidence being taken abroad. That is a very important point. In addition, in the Criminal Justice Bill next Session, I hope to put before the House important proposals for the reform of our extradition law because I am convinced from everything I have learnt in my present job that, until we are prepared to change the basis of our extradition law, it will be difficult to improve our treaty arrangements with other states. It will be difficult to get back into our own jurisdiction the fraudsters with whom we are concerned unless we have made changes at home.

Mr. Dennis Skinner: Is the Home Secretary aware that the difficulty is not so much convicting people who have committed fraud, as the hon. and learned Member for Montgomery (Mr. Carlile) said, as making sure that there are enough people around to look


for them, similar to those who have been employed to look for people who have been fraudulently active on the Department of Health and Social Security front? There should be as many officers in the fraud squad as there are investigating people who are supposed to be claiming too much supplementary benefit. If we had that many people, we might be able to get hold of some of the fraudsters who are difficult to get hold of. Is it not ironic, at a time when the Government are talking about considering the possibility of getting rid of trial by jury because of the complexity of fraud cases, that Sipra, who was given eight months' start by the Chancellor of the Exchequer before he sent the fraud squad in after him, is now out there in another continent, writing novels and laughing at everybody in Britain, having got away with about £70 million from Johnson Matthey Bankers? Peter Cameron-Webb is out there in New York, having salted away £13 million, with his mate Peter Dixon in some other country. Yet the Attorney-General said yesterday at the Dispatch Box that we would have difficulty in getting those people back, and as a sort of cover-up, the Home Secretary says that we shall have to change trial by jury because we cannot get hold of them. What nonsense. The Government are not trying to catch them.

Mr. Hurd: The hon. Gentleman clearly has not listened either to what my right hon. and learned Friend told him yesterday or to anything that I have said today. I have not endorsed the particular proposal to which he has just referred. I have announced, or re-announced, a substantial expansion of Department of Trade and Industry staff to deal with fraud. I have answered a question about the Metropolitan and City company fraud department. I have moved a long way in the direction of showing that we are strengthening Government resources in precisely the direction that the hon. Gentleman wants, but there is no satisfying him. He sits there making his little perorations without listening to the answers that are given to him.

Sir Anthony Grant: Is my right hon. Friend aware that I agree entirely in broad principle with my hon. and learned Friend the Member for Fylde (Sir E. Gardner) about the maintenance of trial by jury? However, the reason that juries tend to convict in minor fraud cases, particularly in social security fraud cases, is because they understand them quite easily, whereas in major fraud cases, where large sums of money are involved, the standard tactic of the defence is to make those cases as complicated as possible. There is, therefore, a case for the Roskill recommendations, which I believe would prove to be a substantial deterrent to the major villains.

Mr. Hurd: There certainly is a case, and the House and the country will want to weigh that case. In addition, as I have already said, the Roskill report makes a number of other recommendations, a few of which I have mentioned. Visual aids are another recommendation. It is particularly cutting at the expense of the prolixity of lawyers, which was mentioned by my hon. Friend.

Mr. Douglas Hogg: Will my right hon. Friend accept that perhaps the most important recommendation in the report for making fraud trials more effective is the requirement that both the prosecution and

the defence should state their case in writing? Will he please consider early legislation designed to achieve that end?

Mr. Hurd: Here again, there should be room for discussion. This is a radical recommendation, but my view is that it is almost certainly justified. We shall certainly find room in next Session's legislation for the radical changes in the Roskill report which, after a short period of deliberation, including debate in this House, are judged to be necessary.

Mr. Gerald Bermingham: Does not the Home Secretary agree that, whereas all of us welcome the pursuit of the fraudster and the ultimate conviction of those who have committed fraud, we must also take into account the balance that has to be struck between the rights of the prosecution and the rights of the defence? In any steps that are taken in pursuit of Roskill, one must always remember that the paramount basis of all justice is even-handedness between the parties. Does not the Home Secretary agree that methods with regard to disclosure of case, the removal of committal proceedings in fraud cases and the jury system tend to go to the heart of justice?

Mr. Hurd: Certainly there should be time, which we propose to give, to consider what I certainly admit are sweeping changes. We shall look carefully at the views expressed on the Opposition Benches. They have pressed us on fraud for a long time. We shall watch carefully how the Opposition respond to our reform proposals.

Sir Dudley Smith: Is my right hon. Friend aware that there is considerable public concern about the current jury system? Does he accept that, in due course, there must be several reforms of the jury system if public confidence is to be retained, as retained it must be?

Mr. Hurd: I think that the system of trial by jury for serious offences lies at the heart of our criminal justice system. The question is what changes are needed to clarify and purify it of any accretions or distortions. As my hon. Friend said, that goes wider than fraud. He knows that we have already set in hand an analytical exercise relating to peremptory challenge, and he will have noticed the caustic remarks that Roskill makes on that principle.

Mr. Donald Anderson: The Home Secretary will be aware of the alarming explosion in salary structures in the City over the past year. What realistic expectations does the right hon. Gentleman have of attracting people of quality from the private sector for short-term appointments?

Mr. Hurd: The hon. Member puts his finger on a difficult point. I am sure that my right hon. Friend the Chancellor of the Exchequer will show his characteristic generosity in considering that problem.

Mr. Toby Jessel: Does my right hon. Friend agree with Lord Roskill that the system of peremptory challenge of jurors
may … enable defendants to ensure that a sufficiently large part of a jury is rigged in their favour"?
Does the right hon. Gentleman agree with Lord Roskill that peremptory challenges should "be abolished" as a matter of urgency?

Mr. Hurd: My hon. Friend was the first in the field on that, and I acknowledge that fact. He knows the


Government's response on the general question, which was given to him before Lord Roskill reported. I do not want today to add to that.

Mr. David Winnick: Does the Home Secretary recognise that the Opposition's fears are the same as those mentioned by his hon. and learned Friend the Member for Fylde (Sir E. Gardner)? The abolition of juries in cases such as the Home Secretary has described could lead to the abolition of juries in certain other cases, on the basis of the same argument. That could happen, bearing in mind the Government's deplorable record on civil liberties—which is as bad as their record in dealing with serious commercial crime.

Mr. Hurd: The hon. Member is trying to have it both ways. If we are to be serious in pursuing fraudsters, as we are serious in the pursuit of drug traffickers, we must strike the right balance. The exact nature of that balance needs to be considered. The hon. Gentleman should not try to catch us in that trap. There is no reason why a system of tribunals for complex fraud cases should lead to an extension of the principle elsewhere. The Government would only do that if the House agreed and there is a perfectly good argument in the Roskill report for ring fencing that area of complex prosecution.

Mr. Ivor Stanbrook: In case it is thought that the diminution of the right of trial by jury is too high a price to pay for improving the system of prosecution of fraudsters, may I commend to my right hon. Friend the possibility of using the civil jurisdiction? That does not carry the difficulty surrounding juries. It makes available weapons that are not available to criminal jurisdiction. There would be a deterrent value in civil jurisdiction equal to that under criminal jurisdiction. Will that possibility be considered, as Roskill apparently did not consider it?

Mr. Hurd: Therefore, nor have I. I note my hon. Friend's point, but I doubt whether the one system could be a substitute for the other. If my hon. Friend would like to develop that point at greater length, I should be delighted to study it.

Mr. Chris Smith: Does not the Home Secretary accept that the prospects of the abandonment of the right to trial by jury is bound to be the most controversial aspect of the Roskill report? By using such expressions as "powerful case" and "excellent basis for substantial legislation", the Home Secretary is likely to give the impression that the Government support that proposal in the Roskill report. Will he make it clear to the House the Government's current view about jury trial?

Mr. Hurd: We shall be having urgent consultations and will listen with interest to the views expressed in the House and in another place, and to general public comment. I made that point in my original statement on the Roskill recommendations on juries, which involve not only proposals about complex fraud cases, but a case for the abolition of peremptory challenge.

Mr. John Maples: Will not my right hon. Friend agree that the right to trial by jury has been a fundamental right for a long time and that, whatever arguments there may be for changing the procedure for

fraud trials, it would be a dangerous precedent to deny to those charged with one particular crime the rights enjoyed by those charged with other serious crimes?

Mr. Hurd: The longer this exchange continues, the wiser we are shown to have been in saying that there should be a little air around this set of proposals. There should be an opportunity for people to consider and discuss proposals before final decisions are made and the Government start drafting the Criminal Justice Bill for next Session.

Mr. Robin Corbett: Is there anything in the Roskill recommendations that would require Barclays bank to take immediate action to stop the apparently fraudulent misuse of its bankers' drafts, which has been going on since April 1985?

Mr. Hurd: No, Sir, and I have no intention of being drawn into particular cases which are not my responsibility.

Several Hon. Members: rose—

Mr. Speaker: Order. I will call those hon. Members who have been rising, but I would ask for brief questions, please.

Mr. Anthony Beaumont-Dark: Will my right hon. Friend not be disheartened by the apparent difference between the hon. Member for Bolsover (Mr. Skinner), who thinks that the Home Secretary is not serious in his wish to catch fraudsters, and the right hon. Member for Manchester, Gorton (Mr. Kaufman), the Opposition spokesman on the matter, who thinks that my right hon. Friend is going too far? If we build an iron fence around the City within which fraudsters know that they are likely to be caught, prosecuted and convicted, that will be the best way to stop fraud. I thought that the Opposition were most keen to do that, as we are.

Mr. Hurd: I thought that, too. I am not in the least disheartened, because what I see, not only in Lord Roskill's report but in the business that follows today, is a clear opportunity for the Government to show, without any fear of contradiction, that they are determined further to tighten the work against fraud. I repeat my disappointment that we do not appear to have the Opposition's support in that.

Mr. Richard Hickmet: Will my right hon. Friend accept that, for many years, it has been considered a basic constitutional right that those who are prosecuted in Crown courts for criminal offences are found guilty only when the jury is satisfied beyond reasonable doubt of the offender's guilt? The proposition that that right should be removed—the right to jury trial—whether it is made in the House or in a report will be viewed with grave concern in the House and elsewhere.

Mr. Hurd: I take my hon. Friend's point.

Mr. Kenneth Hind: Does my right hon. Friend agree that there are two aspects to the report? The first is the prosecution and defence in a trial of those accused of fraud. The other is investigation. Perhaps my right hon. Friend will consider that an essential act in that regard would be to place on company auditors an obligation to report irregularities either to the police or to the Department of Trade and Industry.

Mr. Hurd: Yes, I will consider that, although I believe that that goes wide of the report. A point not picked up in


the exchanges is the commission that my right hon. Friend the Prime Minister has given to the Chief Secretary to the Treasury urgently to study the first of Lord Roskill's recommendations, which is for a unified system of investigation in bringing prosecutions. My hon. Friend's point goes a little wider than that, but I want to emphasise the importance of that decision.

Mr. David Ashby: Will my right hon. Friend accept that not only fraud cases but other ordinary crime cases are very complicated? Rather than throwing away the right to jury trial, which most of the House believes in, there is a case for having special juries in complicated cases. Jurors in such juries might be graduates from universities. Does he accept that, very often, peremptory challenges are used by lawyers to improve rather than to worsen the quality of the jury?

Mr. Hurd: The trouble is that people's ideas of quality sometimes vary in a strange way. My hon. Friend is correct to draw the attention of the House to the idea of special juries. That is an old idea which was recently revived in the columns of The Times and is now proposed by my hon. Friend. It did not find favour with Roskill, for the reasons set out in the report, but no doubt that will form part of the debate.

Mr. Richard Ottaway: On an earlier occasion it was intimated that the courts' lack of jurisdiction to try conspirators to a crime where the conspiracy had taken place wholly in this country but the crime had taken place overseas—a common occurrence in frauds described in appendix F in the Roskill report—was to be dealt with by the Roskill committee. That has not happened. What plans does my right hon. Friend have to block that loophole?

Mr. Hurd: Perhaps my hon. Friend will allow me to look into that matter, as I would rather not answer him off the cuff.

Mr. Tony Baldry: Will my right hon. Friend agree that the jury's purpose is to determine the facts according to the evidence? Very often, that is exceedingly difficult in cases of serious fraud for jurors without experience of accountancy or of how computers operate. In such cases, it is difficult for jurors fairly and justly to determine the facts, and that can lead to injustice. Injustice against one is injustice against us all.

Mr. Hurd: That is a good summary of the main thrust of Lord Roskill's critique. We have to take a little time before setting our decisions in concrete.

Mr. Ivan Lawrence: I welcome my right hon. Friend's wise caution over the abolition of jury trials and peremptory challenge. Will he consider an area over which there will be much less disagreement, which is the enormous expense involved for the state in prosecuting fraud trials, which often go on at great length and are the subject of legal aid? Will he consider extending the inquiry initiated by a former Solicitor-General into requiring defendants in long cases to have to prove their need for legal aid? If they were subjected to long and thorough inquiries, perhaps few would want legal aid. The cost to the state would be much reduced and the length of trials would be reduced accordingly.

Mr. Hurd: I will draw the attention of my noble Friend the Lord Chancellor to the point made by my hon. And

learned Friend. The thrust of Lord Roskill's report is that trials are often too slow in coming on and in wending their way to a conclusion. Many of his recommendations are designed to shorten both processes, and thus to reduce the cost.
My hon. and learned Friend said that I was right to be cautious and that is probably true, but I hope that the House will not be in any doubt about our determination to pursue this analysis and to put into legislation in the next Session some changes that may be controversial, but which will be immensely important. I hope that no one thinks that, because we are being cautious and are not leaping to immediate conclusions, we shall not take the earliest possible opportunity to tighten the noose around fraud.

Mr. D. N. Campbell-Savours: Are deficiences in the present legal system preventing police from bringing prosecutions from fraud?

Mr. Hurd: I am not quite sure what point the hon. Gentleman is on. Roskill shows that the legal and administrative machinery in this area is creaking—I have acknowledged that frankly—and he puts forward proposals for making the machinery in both areas run more smoothly.

Mr. Kaufman: The Secretary of State cannot be allowed to get away with giving the impression that the Government have become crusaders against fraud. Apart from the reaction on both sides of the House to the proposal for the abolition of the right to jury trial in complex cases, the right hon. Gentleman's statement wraps in rhetoric a failure to respond positively to a single one of the specific proposals by Roskill, whereas the Opposition have already called on the Government to adopt several of the specific proposals that we support.
This belated Government action would never have come about without the strong pressure from the Opposition—from both the Front Bench and Back Benches—over a prolonged period. When the Government show the determination against fraud that the Labour party has shown, we shall begin to take them seriously.

Mr. Hurd: I think that the chronology on the record contradicts what the right hon. Gentleman has said. Certainly, we are crusaders against fraud. I had hoped to carry the right hon. Gentleman with me, but after his first intervention I doubted whether that would be possible, because he seemed to be lukewarm about the matter and anxious to make small points. I hope that his second, more angry, intervention suggests that he is also a crusader.

Statutory Instruments, &c

Question put,
That the draft Local Loans (Increase of Limit) Order 1986 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Maude.]

Mr. Walter Harrison: No.

Mr. Speaker: Does the right hon. Gentleman have the support of 20 hon. Members?

Mr. Harrison: I have not checked.

Mr. Speaker: The Question is, as on the Order Paper. Question agreed to.

Leasehold Reform

Mr. Gareth Wardell: I beg to move,
That leave be given to bring in a Bill to amend the Leasehold Reform Act 1967 to prevent the establishment of further leasehold agreements in residential properties; to establish formulae for the calculation fo the price for the purchase by tenants of their existing tenancies held under leasehold agreements; to extend the provision of legal aid to tenants exercising their rights under the 1967 Act and under this Act; and to establish freedom of choice for holders of leasehold tenancies to obtain insurance from the company of their choice.
In his famous Limehouse speech, David Lloyd George said that the residential leasehold system
is not business …
it is blackmail".
Despite considerable improvements effected by the Leasehold Reform Act 1967 and some additional amendments under the Housing Act 1980, the estimated 1·5 million leaseholders in England and Wales would maintain that Lloyd George's observation is as true today as it was in 1909.
The leasehold system is archaic, iniquitous and inequitable. Leasehold tenure is essentially a landlord versus tenant relationship. Therefore, it will always be incompatible with the rights of home ownership, which we associate with being free from intimidation and having security of tenure, freedom of choice relating to our home and, eventually, full rights of home ownership.
A ground landlord buys a freehold for perhaps £300. On site is a house for which the owner paid, say, £30,000. The home owner pays the landlord ground rent of perhaps £30 a year, but the power of the landlord is disproportionate to the interest that he has purchased in that property. In return for allowing a home to be on his land, the landlord can insist on an amazing number of restrictions and obligations from the tenant.
Rules governing internal and external decoration and care of gardens, for example, are common, and many home improvements require permission and approval. Home extensions may involve an extra layer of fees, payable to the landlord for him to examine the plans and determine what work may or may not be carried out.
The home owner is not free to choose the policy or the company which will provide insurance cover. The insurers are nominated by the landlord, who in most cases receives what amounts to a considerable profit bonus from the commission payments.
Last year, one of my constituents forgot to sign the cheque for the ground rent payment. Within the three weeks that it took for the landlord to return the cheque, for my constituent to sign it and for the landlord to record payment, my constituent had received a notice from the landlord informing him that certified bailiffs had been instructed to distrain goods for the £25 ground rent plus £7·50 costs.
Leaseholders are not protected by section 147 of the Rent Act 1977 and ground landlords do not have to get a court order to distrain goods. That sort of harassment, the fear of infringing conditions in a lease and the lack of control and choice over matters affecting a home, which has been bought, are central to the need to abolish the leasehold system.
If a leasehold home owner infringes any of the conditions of a lease, the landlord can cancel that lease. On cancellation or normal expiry of the lease, all the

buildings and property on the plot revert to the landlord. As the report of the Building Societies Association on leaseholding states:
An Englishman's home, if held on Leasehold, is his landlord's castle.
I am sure that the same is true of the Welshman's home.
My Bill would prevent any new leaseholds being created and prevent any trading in leaseholds except between existing ground landlords and their tenants. The Bill would also establish a fixed formula, on a sliding scale, for assessing the purchase price of freeholds. Firm proposals for such a formula already exist, drafted by the Labour party in 1979, for reform of the 1967 Act. A fixed formula will stop the present common practice of landlords plucking a purchase price from the air.
Under the Bill, flat leaseholders would be offered full ownership by adopting a system similar to the strata title system, pioneered in New South Wales, which is working well. Such a system would not be too difficult to incorporate into British law. It would have advantages for individual flat owners, and it is consistent with the new movement by housing associations and housing trusts towards co-ownership of blocks of flats, which will enable improvements to be made to the national housing stock.
The relationship between the leasehold valuation tribunals and the Lands Tribunal would be changed. The South Wales Leaseholders Association has discovered that if a landlord loses the decision of the leasehold valuation tribunal, the landlord asks for a complete re-hearing of the case on appeal to the Lands Tribunal. Although a tenant can probably afford a hearing at the leasehold valuation tribunal, he cannot afford the costs of the Lands Tribunal, which are all too often out of proportion to the amount of money involved. My Bill would make appeal to the Lands Tribunal relate to points of law only, which is normal in other tribunal systems. Such a change would be fair to both sides.
My Bill will allow leaseholders of houses to purchase their own insurance cover. It will give to ground landlords the right of annual inspection of the policy and a certificate of paid premium. Such a system would undoubtedly work better to protect both parties' interests without undermining anyone's rights and consumer choice.
The provisions are an amalgam of the many attempts to introduce legislation and the recommendations calling for action to deal with the most serious problem of leaseholders. In another place, the noble Lord Evans of Claughton introduced the Leasehold Reform Bill which would have simplified the enormously complicated 1967 Act. The Leasehold Flats Reform Bill, introduced by my hon. Friend the Member for Norwood (Mr. Fraser), was followed by the Co-ownership of Flats Bill, introduced by the hon. Member for Kensington (Sir B. Rhys Williams). Almost a year ago to the day, my hon. Friend the Member for Birmingham, Erdington (Mr. Corbett) presented the Leaseholders (Choice of Insurers) Bill. During the past two years the Building Societies Association, the Law Society, the National Consumer Council, the Welsh Consumer Council, the South Wales Leaseholders Association and the Office of Fair Trading have called for reform of one, or several, aspects of the leasehold system. The Nugee committee report is expected shortly and it will also have recommendations on the topic. It would appear that well researched and reasoned reform is possible and timely.
During the past two years hon. Members representing South Wales have, without exception, received representations from constituents who are leaseholders about harassment and pressure from unscrupulous ground landlords, perhaps no more so than my hon. Friend the Member for Caerphilly (Mr. Davies). We agree that constituents are being harassed and made to feel insecure. We assume that is because the landlords wish to pressure the leaseholders to purchase their leases on the landlords' terms. We have been helpless to stop those practices because the landlords are not acting illegally. When Parliament cannot protect people from the law, it is time to change the law.

Question put and agreed to.

Bill ordered to be brought in by Mr. Gareth Wardell, Mr. Ron Davies, Mr. Alan Williams, Dr. Roger Thomas and Mr. Toni Clarke.

LEASEHOLD REFORM

Mr. Gareth Wardell accordingly presented a Bill to amend the Leasehold Reform Act 1967 to prevent the establishment of further leasehold agreements in residential properties; to establish formulae for the calculation of the price for the purchase by tenants of their existing tenancies held under leasehold agreements; to extend the provision of legal aid to tenants exercising their rights under the 1967 Act and under this Act; and to establish freedom of choice for holders of leasehold tenancies to obtain insurance from the company of their choice: And the same was read the First time; and ordered to be read a Second time upon Friday 14 February and to be printed [Bill 57.]

Orders of the Day — Financial Services Bill

Order for Second Reading read.

Mr. Speaker: I wish to inform the House that I have selected the amendment in the name of the Leader of the Opposition.

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Leon Brittan): I beg to move, that the Bill be now read a Second time.
The City of London and the financial services sector as a whole comprise one of Britain's most successful industries. It provides jobs for a million people. In 1984, it generated overseas earnings of over £6 billion. It provides the finance for new investment and new ventures on which our prosperity depends.
Last year, for example, new issues of stocks and shares listed on the stock exchange raised £6·2 billion—money which was invested in industry and commerce, leading directly to the creation of new jobs. Those resources are available because the City of London is the repository of the savings and investments of millions of ordinary people. It is our responsibility to ensure that those people can have confidence in the good practice and honesty of those who do business in the City. That confidence is all the more important with the increasing competition between the financial centres of the world.
If the City of London is to remain a leading centre, then there must be no doubt about the integrity of its institutions, because once that doubt takes root it is only too easy for the customers of the City to take their business elsewhere.
This is all the more important at a time when the City is experiencing major changes. I pay tribute to my right hon. Friend the Member for Hertsmere (Mr. Parkinson) whose agreement in 1983 with the chairman of the stock exchange opened the way for those changes to take place.
For those reasons the Government have been determined to take comprehensive and firm action to deal with financial fraud and, at the same time, establish an effective and flexible regulatory framework in which the City can operate.
The Financial Services Bill is one of the most important measures to achieve these objectives, but it is, of course, only one of a range of such measures. They include the Companies Acts of 1980 and 1981, which strengthened the powers of investigators and increased the powers of the courts to disqualify directors for misconduct, the Insolvency Act 1985 which built upon the Companies Acts by making disqualification of directors for wrongful trading easier, the Green Paper on extradition which contained proposals designed to make it more difficult for offenders to escape the consequences of their actions by going abroad, and the banking White Paper which will increase the requirements for disclosure of information, thus helping to detect fraud at an earlier stage.
I especially welcome the recent report of the fraud trials committee chaired by Lord Roskill, on which my right hon. Friend the Home Secretary has made a statement this afternoon. As he has made clear, the report contains many important recommendations on ways in which the conduct


of the investigation and prosecution of fraud, and the subsequent conduct of criminal proceedings, can be significantly improved.
In addition, the Government have already announced significant increases in the resources available to deal with the investigation and detection of fraud and other malpractices, including the provision of a further 195 people in the parts of the DTI dealing with this. So let there be no doubt of the Government's determination to take the most vigorous action against fraud wherever it occurs.
Having said that, I should like to make it clear that I do not believe that the City of London is riddled with fraud. The overwhelming majority of the people who work there are honourable and hard-working men and women who are extremely anxious that the wrongdoers should be brought to book. Anyone who suggests otherwise risks doing enormous damage to the reputation of the City, which would be wholly unjustified and damaging to the country as a whole. While I believe that the Financial Services Bill is a valuable contribution towards the elimination of fraud, its primary purpose is much wider than that.
It is right for me to pay tribute to the work of my predecessor, my right hon. Friend the Chancellor of the Duchy of Lancaster, and of my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher). It was their White Paper on financial services in the United Kingdom, published in January last year, which laid the foundation for this Bill. I am only sorry that my right hon. Friend cannot be here to see the work he started come to fruition, and I am sure all the House will wish to join me in sending him best wishes for a speedy recovery.
The primary purpose of the Bill is to establish a framework of regulation which will provide effective protection for investors while at the same time promoting an efficient and competitive financial services industry in the United Kingdom. At present, the rules governing conduct in the City are based on legislation passed over 40 years ago. Inevitably, they are inadequate to meet today's needs, but the effect of the Bill will be not just to bring the law up to date and extend its coverage to include a wider range of investments; it will also establish a new and flexible system of regulation capable of responding to changing circumstances and dealing with new problems as and when they arise.
Of course, no system of regulation can or should remove all risk to the investor. If he makes a foolish decision, on the basis of adequate disclosure, then he cannot look to any regulator to make good the losses from his own misjudgment. It is for him to bear the consequences. But it is legitimate for an investor to expect that those who do business with or for him are fit and proper persons to do so, and that they are subject to rules which protect his interests as an investor. It is to meet that expectation that the Bill is designed.
Under the terms of the Bill, anyone who carries on investment business in the United Kingdom will require authorisation to do so, or, in very limited and special circumstances, specific exemption. That power of authorisation and regulation will lie with the Secretary of State. To do business without authorisation will be a criminal offence, carrying penalties of fines and imprisonment. Contracts made by the business will be unenforceable.
The Secretary of State will also have powers to apply to the court for an injunction to ban a person from carrying on investment business without authorisation or to seek a restitution order requiring investors to be recompensed for any loss that they have suffered as a result of the improper conduct of that business. That last power is a new and powerful weapon, the existence of which will be a major deterrent against misconduct and the exercise of which can provide effective redress for a wronged investor.
For the first time, the Bill provides a comprehensive definition of investment and investment businesses and it is estimated that there may be as many as 15,000 businesses which will require authorisation as a result.
As well as those already covered—

Mr. Alan Howarth: On the definition of an investment, to which my right hon. and learned Friend has just referred, he is, I am sure, aware that some anxiety is felt about the definition in schedule 1 of "Long term insurance contracts". Will he undertake that, in Committee, the Government will be willing to reconsider that point to see whether the schedule, as drafted, may not treat as investments some pure protection policies on which potentially no profit or loss could arise, such as, for example, renewable accident and health insurance policies?

Mr. Brittan: Of course, we shall look at that and any other points. Towards the end of my remarks I shall be saying a word about the Government's spirit and general approach towards the Bill in Committee.

Mr. D. N. Campbell-Savours: Does the Secretary of State accept that a person who invests in a syndicate at Lloyd's is an investor and that what he places is an investment? On that basis, in the light of all the scandals that there have been over past years, why should Lloyd's not be included? Is it not true that if the Bill is passed as it stands, it in no way affects Lloyd's?

Mr. Brittan: I shall be coming to the subject of Lloyd's later.
It is the belief of the Government that the task of regulation of businesses of the kind I have been asking about can most effectively be conducted by those who have direct experience of the financial services industry and who are in close touch with developments in the market.
The Bill therefore enables the Secretary of State to transfer the majority of his powers to one or more designated agencies, made up of providers and users of financial services who will have the knowledge and expertise to ensure that investors' interests are being properly looked after.
The chairman and members of the agency will be appointed jointly by the Governor of the Bank of England and the Secretary of State.
However, powers will be transferred to the agency only if the Secretary of State is satisfied that the agency's rules will adequately protect investors and are in compliance with the principles contained within the Bill and that the agency is prepared to enforce them.

Mr. Anthony Nelson: My right hon. and learned Friend has referred to the appointment of the chairman of the designated authority. He said that that appointment will be made jointly under the schedule by the Secretary of State for Trade and Industry and the Governor


of the Bank of England. Does he think it right that the Governor of the Bank of England should have an effective veto over the appointment and discharge of the chairman of the designated authority over an investment rather than a banking industry?

Mr. Brittan: In view of the broader role of the Governor of the Bank of England in relation to the City, it is a reasonable requirement that he should be enabled to do that jointly with the Secretary of State for Trade and Industry. I was going to say that the transfer of functions will itself be subject to parliamentary approval.
If the Secretary of State is not satisfied that the agency to which powers have been transferred is continuing to meet the criteria set out in the Bill, then he will, once again subject to parliamentary approval, be able to resume those powers either in part or in total. We believe that those arrangements will ensure the proper level of accountability of the designated agency.
Some have suggested that it would have been better to establish a statutory commission; but in doing so they have singularly failed to identify any benefits which our proposals do not already provide. Those who argue for such a system should specify precisely which powers they say are present in a fully statutory system, but are absent from ours and would make our system more effective. I challenge them to do so in the debate. We should proceed from glib labelling to precise proposals. A statutory commission of the kind suggested would lack the advantages of the practitioner-based system that we propose. Its remoteness from the market place and lack of first-hand expertise would make it cumbersome and bureaucratic and unable to react swiftly to changing market needs. Our system enables rules to be made quickly and flexibly by a body which can count on the personal commitment of those it regulates to high standards of conduct, because such a body has been proposed and will be financed by them.
None the less, it is important not to exaggerate the difference between what is proposed and the creation of a statutory commission, for the designated agency will itself be operating within and be controlled by the clear statutory framework set out in the Bill.

Mr. John Butterfill: Clause 104 provides that the Secretary of State must consult the Director General of Fair Trading about any rule changes. Does my right hon. and learned Friend consider that that obligation is sufficiently wide, or should the Secretary of State have a much wider obligation to consult other than merely with the Director General of Fair Trading?

Mr. Brittan: In the context of that provision, it is a reasonable requirement because it relates to the relationship between the areas of policy covered by the Director General and the rest of the Bill's structure. I believe that the requirement is reasonable, but I have no doubt that it is a matter that will be considered in Committee.
There will be two further measures to ensure public accountability. First, the Bill will establish a financial services tribunal to which a business or individual will have the right of appeal against the agency's decisions. The tribunal will be chaired by a lawyer appointed by my noble Friend the Lord Chancellor and will have two other members appointed by the Secretary of State, one of whom will be appointed for his or her relevant practical

experience. The tribunal will investigate and report on the cases referred to it and the agency will be bound by its findings.
The second further measure of accountability will be a requirement that the agency submit an annual report which will be laid before Parliament, and will, of course, be open to the House to debate. Although the Bill provides for the possibility of more than one designated agency, the House will be aware that the Securities and Investments Board and the Marketing of Investments Board Organising Committee have announced that they intend to merge to form a single body. It had always been the intention of the Government that this opportunity should be open to them, and I welcome their announcement.
Once designated, the agency will itself be able to authorise a fit and proper person, individual or corporate, to carry on investment business. It will also have the power to withdraw or suspend authorisation in the event of breaches of the rules occurring. The regulatory powers at the disposal of the agency are designed to enable firm and speedy action to be taken to protect investors' interests. They are also hard-hitting and extensive.
Let me outline just some of the powers available to the agency for the protection of investors. It will be able to investigate any authorised business; and it will be able to impose restrictions on the kind of investment business done by any person it has authorised. It may require assets to be kept in the United Kingdom; and it may appoint a trustee to control the assets of an authorised business. It may issue a public reprimand as to a person's misconduct; it may seek injunctions to restrain businesses from breaching or continuing to breach a rule; and it may seek restitution orders for the repayment of losses suffered by investors through a breach of the rules.
Taken together, the range of these powers is just as extensive for the protection of investors as those of the Securities and Exchange Commission of the United States of America. What is more, they will be backed by the criminal law and the full range of criminal sanctions, including fines and imprisonment. It will be a criminal offence to try to induce someone to enter into an investment agreement by making a false or misleading statement, or to engage in any course of conduct which deliberately creates a false or misleading impression of the price or value of an investment.
It will be an offence, except in limited circumstances, for any person who is not authorised to do so to issue an advertisement inviting people to enter into an investment agreement. It will, of course, also be a criminal offence to continue to practise investment business once authorisation has been withdrawn.
As I have said, the Bill provides that the Secretary of State may transfer functions to the agency only if he is satisfied that the rules the agency proposes will afford investors an adequate level of protection and comply with the principles set out in the Bill. These principles draw substantially from the requirements of the common law of agency. Some deal specifically with the new potential conflicts of interest which will arise when dual capacity trading on the stock exchange is permitted from 27 October this year. More generally, the principles include requirements that the rules governing all investment business must promote high standards of integrity and fair dealing.
The rules must also impose a duty that businesses must act with due skill, care and diligence in the provision of


investment services. They must make proper provision for the disclosure of interests in, and facts material to, transactions or advice, as well as requiring an authorised business to subordinate its interests to those of its clients, and to act fairly between clients. They must require proper records to be kept and be open to inspection, and they must ensure that there is due regard for the circumstances of clients and that provision is made for the protection of clients' money and property. They must also make the best possible provision for compensation in the event of default by an authorised business.
If the rules are broken, an investor who suffers loss as a result will be able to make a claim against the business; but, to help him avoid having to go to the courts, the agency will have the power to set up an ombudsman or arbitration scheme to resolve disputes. This statutory framework, under which practitioner-based regulation will operate, is designed to promote the highest standards of investment business and deter fraud. It is in the interests of everybody who does business in the City that it should succeed.
Many, if not most, investment businesses may obtain authorisation by joining one of the practitioner-based self-regulating organisations which may be recognised by the agency under the terms of the Bill. Self-regulation has been shown to work, and work well. The stock exchange is living proof of that fact. Self-regulation does not mean relying on people's consciences; it means judgment by one's peers. The scheme proposed in the Bill is in no way a soft option. It will work because it is in the interests of those who will be charged with carrying out that it is seen to do so.

Mr. Peter Thurnham: Will my right hon. and learned Friend clarify to what extent the agency will have the power to ask an auditor to divulge information that he might otherwise consider to be confidential to his clients?

Mr. Brittan: As my hon. Friend perhaps knows, a consultative document was recently issued, and it is designed to explore and consider the way in which the relationship between auditors and the regulators can develop to meet precisely the problem that he has rightly identified.
To qualify for recognition, a self-regulating organisation will have to satisfy the agency that its rules and procedure for enforcement provide investors with a level of protection at least equivalent to that provided by the agency. If a recognised self-regulating organisation fails to continue to meet the criteria for recognition, the agency will have the power to apply for a court order directing the self-regulating organisation to take the steps necessary to ensure compliance. Alternatively, the agency will be able to restrict the types of investment business regulated by the self-regulating organisation concerned, or, indeed, remove its recognition altogether.
This deployment of self-regulating organisations is not some revolutionary and untested idea. Indeed, both the American Securities and Exchange Commission and Commodity Futures Trading Commission make increasing use of self-regulating organisations to regulate investment businesses. Some investment businesses with a wide range of investment activities may have to join several self-regulating organisations or even choose to be directly

authorised with the agency for some of their activities. Some may also provide banking services, be registered as a building society or be separately authorised as an insurance company under the Insurance Companies Act 1982. Both the Financial Services Bill and the proposed new banking Bill will lay down the boundaries of the two regulatory systems and provide powers to enable those boundaries to be swiftly adjusted to meet the needs arising from the creation of new financial activities.

Mr. Gerald Bermingham: Will the right hon. and learned Gentleman confirm that in this Bill there will have to be a certain amount of tightening-up with respect to, insurance commissions paid to professional persons such as solicitors, accountants and estate agents? Very often the consumer—the purchaser of a house or the person who takes out a policy—is unaware of the exact amount of commission paid to professional persons.

Mr. Brittan: The hon. Gentleman will be aware of the provisions relating to investment on behalf of the professions and the requirements for the regulation of that activity. Those represent an adequate and important new protection.
The Building Societies Bill and the Financial Services Bill contain powers to enable information to be disclosed to other regulators. The Government intend to enlarge the scope of the powers in the Financial Services Bill to enable information obtained under the Banking, Companies and Insurance Companies Acts to be disclosed to other specified regulators in appropriate circumstances.
I now turn to the position of Lloyd's.

Mr. George Foulkes: While everyone recognises the importance of the licensing of insurance companies, can the Secretary of State say whether or not a rumour that is going around, that the proposal is also to license individual insurance salesmen, is correct? There is some worry that it may give them some sort of spurious respectability. It would also lead to a great deal of administrative cost, which might not necessarily be of advantage to the consumer.

Mr. Brittan: We are awaiting proposals on that very point from the MIBOC. No decision has been taken. Of course, the administrative considerations to which the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) has referred must be weighed against any advantage that may be seen from the extra protection from the registration or licensing system. I certainly have not reached a conclusion as to where the balance of advantage lies.

Mr. John Smith: Under the Bill, a self-regulating organisation will be approved by the Securities and Investments Board, which will be able to look at the organisation's rules before approving it. However, it may emerge that some rules need to be changed because they are not working, but the SRO is not willing to change them because it does not suit it to do so. Is it right that the SIB has no power to enforce the change of rule but only a power to disband the whole organisation? This is rather like a nuclear weapon. Will the right hon. and learned Gentleman clarify that point, to which we shall probably return in Committee?

Mr. Brittan: I am happy to do so. The right hon. and learned Member for Monklands, East (Mr. Smith) is not


entirely right. The agency will be able to apply to the court for a compliance order. By that mechanism the SIB can deal with a situation in which the rules are felt to be inadequate.
As this is an important point, I should like to explain why we have reached that conclusion. The SROs will only work in the way we want if they attract people of calibre, integrity, experience and knowledge. They will attract such people only if they are allowed to operate in an independent way. None the less, the SROs must not be immune from investigation if something goes wrong. If the SIB, or its successor, is allowed to intervene directly and change the rules, that would undermine the balance between the SIB and the SROs to the detriment of the system as a whole. If a third party in the form of a court is interposed to consider whether there has been adequate compliance with the requirements, that balance would be maintained. There is no question of the SROs being able to disobey the requirements and face only the prospect of disbandment or disavowal. Equally, the SIB is equipped with the real power to intervene if it thinks it is appropriate to do so.

Mr. Paddy Ashdown: Surely the right hon. and learned Gentleman's argument can be reversed—the SIB will attract people of quality and calibre only if it has the power to do things that are important. Would it not be better to give the SIB that reserve power to order the changes and also to protect the rights of the SROs so that they can appeal through the courts if they feel that the law has been overturned? In other words, one would have the presumption of action on the part of the SIB rather than the SROs.

Mr. Brittan: As the hon. Gentleman has fairly put it, it comes down not to a fundamental difference of principle—

Mr. Ashdown: Yes, it is.

Mr. Brittan: No, not of principle. It is a question of where the balance and onus shall be in terms of invoking the courts. It is right to say that if it were done the other way, it would be the SROs that would go to the courts. I think—and I believe that those who have heard my recital on the SIB's powers would agree—that the powers given to the SIB are so substantial that there is little risk that anyone would think that the SIB was an insubstantial body. I think that the balance in the Bill is right.
Hon. Members will know that on Friday I announced that I had decided to set up an inquiry into the regulatory arrangements set up at Lloyd's under the Lloyd's Act 1982. It might be useful to give a little of the background. Hon. Members will recall that in 1980 Lloyd's sponsored a private Bill to reform the constitution of the society. The Lloyd's Act, as it became, created the council of the society and provided for extensive new byelaw-making powers. The council since then has been setting up an extensive and far-reaching new system of regulation. This is a continuing process that is not yet complete, but Lloyd's has already made over 40 new byelaws.
It was shortly after the Act was passed that the facts relating to events in certain Lloyd's syndicates began to emerge—events, of course, occurring before its enactment. Lloyd's has investigated, or is investigating, these and other events under its new machinery, and some

of these matters are, of course, currently being examined by the Director of Public Prosecutions. It is, none the less, natural to ask whether, in the light of events, even allowing for the fact that they occurred before the passage, let alone the implementation, of the Lloyd's Act, any further regulatory action with regard to Lloyd's is necessary.
The Lloyd's Act 1982 does two things. First, and of paramount importance, it protects the interests of Lloyd's policyholders. It is buttressed in this by the Insurance Companies Act 1981. Secondly, it regulates the interests of members of Lloyd's the people who provide the capital for insurance business and stand behind the insurance policies.
Distinguishing between those two aims is a tricky problem. The problem is awkward enough for life companies, which are covered by the Bill. Hon. Members will have noted the complex provisions of schedule 8, reconciling investor and policyholder protection. But it is a relatively easy matter there—investors and policyholders are the same people, while in Lloyd's they are different. That is why I have grave doubts as to whether this Bill is an appropriate instrument to cover Lloyd's, even if it were decided that further protection was necessary and that protection had to be of a statutory character.
Because of the genuine concern that has been expressed about Lloyd's I am setting up an independent, full and rigorous inquiry. This will assist me in reaching a final judgment about whether further action is necessary. As the Prime Minister and I have already clearly stated, we will not hesitate to take whatever action we conclude is necessary. This inquiry should in no sense be interpreted as an indication that the Government have concluded that the arrangements currently in place at Lloyd 's are defective.
I am pleased to be able to announce that Sir Patrick Neill, currently vice-chancellor of Oxford university and chairman of the Council for the Securities Industry from 1978 to 1985, has agreed to chair the inquiry. I shall announce the other members very shortly. I shall ask the inquiry to consider whether the regulatory arrangements set up at Lloyd's under the 1982 Act provide protection for the interests of members of Lloyd's comparable to that proposed for investors under the Financial Services Bill. The report will be published, and I aim to have it by the summer.
I turn to some other specific points in the Bill. Members of certain professions—accountants, solicitors, and so on—carry on some investment business incidental to their profession. They are already subject to the discipline of their professional bodies, and the Bill will allow those bodies to obtain recognition, subject to meeting the same standards of investor protection as are required by the main regime.
The Secretary of State will be able to prevent a financial firm from any foreign country from doing business in Britain if United Kingdom firms are not given access to that firm's home market, equivalent to that provided by the United Kingdom. The Bill's provisions on reciprocity of access will extend to banking and insurance as well as to the investment sectors. The Bill recognises the importance of investment exchanges and clearing houses in facilitating investment transactions and providing investor protection and contains provisions for their recognition.

Mr. John Heddle: Has my right hon. and learned Friend seen a report prepared by the Royal Institution of Chartered Surveyors on the unitisation of property, which advocates a single property unit? In effect, this enables multiple ownership in a single property by the small investor. Does my right hon. and learned Friend agree that, if implemented, that would have the effect of diverting valuable resources to inner city renewal and urban decay? Does he also agree that, if the unitisation of property were a feasible proposition, it might involve amendment of the Law of Property Act 1925 and the Prevention of Fraud (Investments) Act 1958? Will my right hon. and learned Friend undertake in Committee to look at these recommendations to ascertain whether they can be implemented?

Mr. Brittan: I have seen the report to which my hon. Friend refers. It is not free from difficulty, but I am sure that we will want to look at it further.
The Bill also provides a special regime for the application of competition policy to the financial services sector. It reforms the regulation of unit trusts and other kinds of collective investment schemes. It brings together under one statutory roof scattered provisions on public offers.
It replaces the Stock Exchange (Listing) Regulations 1984 and provides a more satisfactory framework for the implementation of the three European Community directives on listing. In particular, there will be a general duty on those responsible for an issue to disclose all information reasonably required by a potential investor. If they fail to do so or supply false information, they will be liable for damages to any investor suffering loss as a result.
The Bill gives the Secretary of State a new power to appoint inspectors to investigate possible insider dealing. The inspectors will be able to question people on oath and require papers and documents to be produced. The Bill also extends the offence of insider dealing by Crown servants to other public servants.
There are three further specific provisions which the Government intend adding to the Bill in due course.
First, in the light of comments on our consultative paper about auditors, we shall propose amendments to enable auditors of investment businesses to have a dialogue with the supervisors of those businesses. In particular, auditors will be expected to report to supervisors when there is a public interest in disclosure—for example, because of suspicion of fraud.
Secondly, it is intended to facilitate the formation in the United Kingdom of open-ended investment companies.
Thirdly, we shall propose amendments to the Bill to restrict the Insurance Brokers (Registration) Act 1977 to non-investment insurance business, so as to leave room for the emergence of a new institutional structure to regulate life insurance intermediaries.
This Bill is complex and highly technical, but it is also important.

Sir John Page: I am extremely grateful that my right hon. and learned Friend has referred to the Insurance Brokers (Registration) Act, which is known, nationally and internationally, as the Page Act. There is a rather serious point here for the smaller registered insurance brokers who already have to pay fees as registered brokers under the Act and who, if they went in for life insurance and so on, would have to pay

additional fees under this new Bill. Could my right hon. and learned Friend in his kindness think of some way in which this doubly harsh wind might be tempered to the shorn lamb?

Mr. Brittan: I would certainly like to look into the point. I am grateful to my hon. Friend for raising it. I am only sorry that parliamentary convention prevented me from giving the legislation the title that it justly deserves.
It would be absurd to put forward this Bill, which, as I have said, is a complex and highly technical but also important one, on a "take it or leave it" basis, and I shall not do so. We will listen carefully to the views of hon. Members and to points put to us by practitioners and investors. In general, I believe that the balance in the Bill is sound, but we shall respond constructively to what is said during its passage. The Bill will, I believe, provide our financial services industry with a regulatory framework as comprehensive as it is modern. By this legislation we can ensure that both the reputation and the competitiveness of the City are preserved and, indeed, enhanced.
I commend the Bill to the House.

Mr. John Smith: I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:
this House declines to give a Second Reading to a Bill which fails to provide, through the means of an independent, self-standing commission, a clear and direct statutory framework for City regulation, which fails to bring within its provisions some City institutions, particularly Lloyd's, which are most urgently in need of effective supervision and regulation, and which fails to provide to the supervisory authorities the powers which are needed to prevent, detect and punish City fraud.
The need for legislation to deal with fraud in the City and associated institutions is uncontested in the House. We have seen over recent months and years fraud on a scale and to a depth which has caused great and justified concern not only throughout the financial institutions but throughout the whole country. Legislation of this kind, therefore, is long overdue. I do not propose at this stage, however, to go in detail through the complex provisions of many parts of the Bill. That is a task which can be undertaken in a much more effective way in Committee.
Nevertheless, it is important at this stage, before the House decides whether or not to give approval to the shape of this legislation, that we face up to some important and controversial issues which arise from the form in which the Bill is couched and from some of the decisions that the Government have taken. We have covered this area to some extent in a number of earlier debates on the White Paper, and points were made on these occasions about the scope of the Bill. I do not think that the Government have deviated very much from the proposals that were contained therein.
A great deal of the Bill is unexceptionable because it results from the recommendations of Professor Gower, many of which were sensible; these have been incorporated in the Bill. I do not object to the concept of authorisation which lies at the heart of the Bill, but, as our recent amendment makes clear, we believe that there are three important qualifications to be made, three important faults in the way in which the Government are approaching this matter.
The first is the decision on what to include and what to exclude; the second is the technique of enforcement, the


whole question of whether there should be an independent commission or whether it should be left to the so-called self-regulating organisations; the third is the question of bringing to book people who are found to have transgressed the laws which Parliament has passed.
On the first point, I find it frankly incredible that at this stage, after what has happened, Lloyd's is to be specially excluded from the provisions of the Bill. We have seen more fraud in Lloyd's in the past two or three years than I hope took place in the whole of its previous history. We saw, for example, £39 million disappear with Alexander Howden, £38 million disappearing in the Minet Holdings affair—

Mr. Brittan: I am sorry to interrupt the right hon. and learned Gentleman so early in his speech but I wonder if he could identify which charges he is making in relation to the past two or three years, which is what he said.

Mr. Smith: They have come to light in the past two or three years. [HON. MEMBERS: "Oh."] We are exhibiting already, it seems to me—or rather the Secretary of State is exhibiting—very great care, before we even get into the question of Lloyd's, to make sure that we are absolutely accurate in what we say. Of course that is fine. I ought to take exactly the same care. He knows, however, perfectly well what I am referring to. He knows about the major scandals that took place in Lloyd's and if he wants me to go into more detail I will be glad to do so, of, for example, the Peter Cameron-Webb syndicate, where something like £130 million has disappeared.
The Minister knows perfectly well that there are people who practise at Lloyd's—some of them have responsibility for this so-called self-regulation—who have had to be brought to book for the way in which they carry out their affairs. Anyone who can speak so blandly about the merits of self-regulation, after having seen what some of these self-regulators have done in their own interests, is someone who is not taking a grip of the realities of the situation.

Sir Anthony Grant: rose—

Mr. John Smith: I will give way to the hon. Gentleman. I am quite happy to give way to all the apologists of Lloyd's, of whom the hon. Gentleman is, no doubt, another.

Sir Anthony Grant: Is the right hon. and learned Gentleman aware that it was precisely because many of these major scandals were known and because Lloyd's had not the power to deal with them that the 1982 legislation was enacted—and strongly supported by Opposition Members?

Mr. John Smith: It is a touching tale, is it not? All the time that they were really panting to deal with the problem, they did not have the powers in place. Now that they have the powers in place, of course, we can all relax. But that is not the general feeling in this community, and there is still justified concern about the affairs of Lloyd's.
This is a concern which has not diminished with the departure of the chief executive of Lloyd's, whose appointment to that position, I think, lessened the fear that many people have had; the circumstances of his departure are such as to raise once again these very questions about whether Lloyd's can be trusted to look after its own affairs.
There is also the question of the Inland Revenue investigation into Lloyd's, one of the largest ever undertaken by the Inland Revenue. While these two matters, both of which have occurred in very recent times, are fresh in the memory, I do not think that the community will be as easily satisfied as the Secretary of State and his colleagues are.

Mr. Nicholas Baker: On the answer that he gave to my right hon. Friend who was, with me, a sponsor of the 1982 Lloyd's Bill—since then, I myself have become a member of Lloyd's—what the right hon. and learned Gentleman should be seeking to show is that any of the scandals that he is talking about have arisen in respect of events post-1982, that the council of Lloyd's today does not have the power under the Act to deal with such scandals as have appeared or that there is any negligence or complacency on the part of the council of Lloyd's in dealing with those matters. I submit that there is no such thing and that it is up to the right hon. and learned Gentleman to establish that that is the case.

Mr. Max Madden: On a point of order, Mr. Deputy Speaker. Would you ask hon. Members who are members of Lloyd's and who intend to speak or intervene in the debate to disclose that interest, notwithstanding whether or not any declaration is made in the Register of Members' Interests? I am sure that it is within your memory that, when the Register was established, clear advice was given that when hon. Members who held an interest spoke or intervened in a debate they should disclose that interest at the time, and not rely on the Register of Members' Interests to declare that interest.

Mr. Deputy Speaker (Mr. Harold Walker): The practice of the House is clear. Hon. Members who take part in a debate and have a direct pecuniary interest in the matter under debate should declare that interest. As the hon. Gentleman has rightly reminded us, every hon. Member is obliged to declare his interest in accordance with the rules of the Register of Members' Interests.

Mr. Smith: I was asked whether I was satisfied that all was well at Lloyd's, and whether I was prepared to accept its assurances. [Interruption.] It is some time since the question was asked, and it was not clearly phrased. Its general import was that I should be content with assurances which appeared to be emanating from Lloyd's. I have already made it clear that I felt considerably disturbed at the departure of the chief executive, and no new chief executive appears to have been appointed.

Mr. Keith Best: rose—

Mr. Smith: I wish to make progress. I am willing to be fair and to listen to all members of Lloyd's and all Tory Members with pecuniary interests, but it will hold us up if I do not reach the heart of the debate because of their obsession with Lloyd's.

Mr. Best: I am happy to declare an interest as a member of Lloyd's. The right hon. and learned Gentleman will accept that, if anything, members of Lloyd's have an interest in Lloyd's being included in, not excluded from, the Bill. Does he accept that the successor to Mr. Ian Hay Davison will serve on precisely the same terms? That has been made absolutely clear. Does he further accept that the information contained in early-day motions tabled assiduously by his hon. Friend the Member for Hackney,


South and Shoreditch (Mr. Sedgemore) is known only as a result of the investigations carried out by the council of Lloyd's, as at the end of those investigations matters are made public?

Mr. Smith: Following the departure of Mr. Davison, Lloyd's had to give certain assurances that his successor would have the same powers, but I do not know whether the chairman of Lloyd's offered them willingly. There seemed to be some dissension about the matter. The fact that some controversy existed over the role of Mr. Davison's successor did not make people feel easy about the whole position.

Mr. Foulkes: rose—

Mr. Smith: I shall give way to my hon. Friend because, whatever else he is, he is not a member of Lloyd's.

Mr. Foulkes: Can I urge my right hon. and learned Friend not to give way to every member of Lloyd's on the Tory Benches? It will delay the debate, because there are 52 Tory Members who are members of Lloyd's. That may explain why Lloyd's is not included in the Bill.

Mr. Deputy Speaker: Order. Irrespective of the number of members of Lloyd's in the House, I hope that interventions will be limited and brief because many hon. Members wish to take part in the debate.

Mr. Smith: I hope that some members of Lloyd's will feel that they have made a sufficient contribution already by the interventions which I have permitted them to make.
The reason for a so-called inquiry into Lloyd's which was announced on 10 January was because the Second Reading of the Financial Services Bill was today. The Secretary of State was so anxious to announce an inquiry that he had not even organised the chairman by the time he announced the inquiry. It was imperative that he had something in place when he came to speak on Second Reading. It is nothing more than a transparent device to pretend that the Government are truly worried about Lloyd's.
The press notice which the Secretary of State issued at the time is a giveaway. He explained that the inquiry would consider whether the regulatory arrangements at Lloyd's provided protection comparable to that provided in the Bill, and immediately said that the inquiry
should in no sense be seen as indicating any conclusion by the Government that the arrangements at Lloyds were defective.
No sooner had he announced the inquiry than he rushed to assure Lloyd's that it did not imply that Lloyd's arrangements were defective. That hardly shows the anxiety which a Secretary of State who is determined to eradicate scandals would exhibit. Therefore, our function in Committee will be to table amendments to remove the exclusion of Lloyd's from the Bill.
It may be that the inclusion of Lloyd's would require special measures, in which case all those involved should provide them. Lloyd's should be included within the scope of a Bill which seeks to regulate financial institutions. If the Government do not give way on the matter in Committee—they show little sign of doing so—the seriousness of their resolve to introduce this new legislation will remain in doubt.
The Secretary of State said that there was merit in self-regulation, but he did not seem to want to go far down that

road because he said that some powers would be similar to those which exist in countries with independent statutory bodies. We argue for an independent statutory body primarily because it is independent. The trouble with too much self-regulation is that it can be turned too easily to self-protection. Regulation should be based on an independent commission, as it is in most countries in the western world which have supervisory systems. The Labour party has advanced that view for more than 10 years, and I have noticed recent converts to that proposition.
The problem with the Government's proposal is that recent happenings have caused a loss of faith in the capacity of some organisations to regulate themselves. We are told that, while there may be merits in an independent commission, it would inevitably be legalistic and bureaucratic; the Securities and Exchange Commission in the United States is referred to. We do not necessarily need to follow the United States' experience, even if there is any truth in the allegations, and I am not sure whether there is.
First, there is no question but that in the United States people are much more interested in litigation for its own sake than we are. Secondly, life in the United States is complicated by the existence of federal and state legislation working together. That inevitably means that any supervisory body must be more complex than it would need to be here. I do not believe that any conclusion adverse to an independent commission in the United Kingdom can be drawn from the United States' experience.
It would be much simpler and clearer to move towards an independent commission. It may not be popular with those who are to be regulated, which seems to be the main reason why the Government have moved against it, and it may not be popular in the City, but, with respect to the Government, that is not important. The question in the public interest is: which will provide the more effective system of regulation?
The Labour party is not alone in advancing that view, although it has advanced it for longer than any other body that has commented on the whole question. On 18 October 1984 a Financial Times leader about financial services' legislation stated that the proposals put forward in the White Paper were
only in skeleton form: the flesh and the muscle have yet to be filled in. The preliminary verdict, though, is that the Government would have done better to take a deep breath and go for an independent statutory agency.
I have also recently noticed that Sir John Nott, who was Secretary of State for Trade in one of the recent Conservative Governments and who is now a figure in the City—actively involved in another matter which concerns the Secretary of State and the Prime Minister—believes that the time has come when it is necessary to have an independent commission. There is a growing body of opinion within the City itself that the most effective way in which to approach this matter is through an independent self-standing commission. The failure to take that step forward is one of the crucial omissions of the legislation.

Mr. Brittan: Will the right hon. and learned Gentleman tell me in what way the body which he has in mind will be more independent, more free-standing than


the Securities and Investment Board, jointly appointed by the Governor of the Bank of England and the Secretary of State?

Mr. Smith: It would be independent and would not be dependent for finance on the organisations which are to be regulated. The point about a self-regulating organisation is that it springs from the bodies which are to be regulated; they finance the organisation and are bound to have a heavy influence on how it goes about its affairs. It would be possible for the cost of the operation to be—

Mr. William Cash: rose—

Mr. Smith: I hope the hon. Gentleman will sit down. I have given way extensively. I must be allowed to develop my argument, particularly in response to the Secretary of State's intervention.
The financing of these bodies is important. I am not suggesting that the cost should be borne by the taxpayers. There are other ways in which those concerned could provide the money. The fact that it is done in its present way is bound to raise some suspicions. [Interruption.] Conservative Members can titter and grimace but they must remember that, to people outside, they look like people defending special vested interest. The interest of this side of the House is to take account of the proper public interest.

Mr. Cash: rose—

Mr. Smith: I will not give way to the hon. Gentleman. I do wish that we had decided to televise the House of Commons. If this debate were on television the public would be able to see the vested interests ranged against me. Almost all the Conservative Members who have intervened have a special interest in the context of this legislation.
Another major omission from the structure of this Bill is that it does little in the process of enforcing the law. We may have a detailed and comprehensive system of law but unless it is enforced properly, there is little point in having the laws on the statute book. We have been told that extra bodies will he provided for the Department of Trade and Industry investigation branch. More people will be provided at the office of the Director of Public Prosecutions. The more there are the better. Certainly there is a need for more people to be engaged actively in the detection of fraud which exists in the City.
We know perfectly well that the Conservative party has been content for years to live with the system wherein the detection and the prosecution of fraud in the City was done in an especially lax manner. It is staggering to contemplate the fact that not one criminal prosecution has arisen from the Lloyd's scandal. If the Government gave this the sort of priority which they give to other matters then something would have been done years ago. I remind the Secretary of State of the enthusiasm that has been shown by members of the Government for the detection and prosecution of fraud in the social security system. We have had campaigns by Ministers; one Minister who is no longer with us, his services dispensed with by the electorate at the last election, made a name for himself with his constant obsession with social security abuse. The right hon. and learned Gentleman's Parliamentary Private Secretary has a close knowledge of these matters, and indeed might be called an accidental beneficiary of the electorate's wisdom on that occasion.
The report of the Public Accounts Committee of 7 November 1983 states that there are 5,500 staff engaged in anti-fraud activities. These 5,500 people find out frauds, which are estimated to cost the Department of Health and Social Security £190 million a year. All the social security fraud which is detected and prosecuted is equal to the sum in the major Lloyd's scandal. There are only a handful of people dealing with the whole of the City but thousands are committed to the social security system. The Government constantly tell us about the problems of law and order in our society. The Government tell us of the virtues of the short sharp shock treatment for offenders. I wish that the Government would think of a short sharp shock for some of the offenders in the City; they would benefit greatly from that approach to their misdemeanours.

Mr. John Maples: A long sharp shock.

Mr. Smith: I stand corrected by the percipient hon. Gentleman. A long sharp shock is what is required for some of the offenders to stop them practising their trade to the detriment of fellow citizens.
If the Government are at last coming round to do something, belatedly and unenthusiastically, about prosecution of fraud in the City and the financial institutions, they are doing so because of mounting public concern and pressure and because they know that they cannot hold the line any longer. Like the Establishment in dealing with all radicalists, they will retreat in the face of the popular demand for something to be done. There is nothing like the enthusiasm which there should have been from any Government who are possessed with a real concern to bring fraud in the City to book. This legislation avoids some of the controversial matters which should have been tackled by the Government. The time for the Government to be bold has never been more ripe because of the changes to which the Secretary of State referred and which will occur on 27 October this year, the so-called "big bang".
The Secretary of State presented the arrangements that were made between his right hon. Friend the Member for Hertsmere (Mr. Parkinson) and the stock exchange as some carefully planned imaginative change for the future. It is nothing of the kind. It was a hastily cobbled deal to exclude the stock exchange from the restrictive trade practices court. It will bring about a series of changes that will alter the face of the City and which the authors of the agreement had not the slightest conception would occur when they entered into it. The character of the City will change fundamentally. Formal institutions will own stock exchange members; the previous divisions of the functions of the stock exchange will be obliterated. Inevitably there will be large international financial conglomerates. There will be organisations offering a complete range of financial services.
It is bound to be a period of change, a period of depersonalisation as institutions become conglomerates. The old boy system, in which people adhered to a code, cannot be maintained when these old boys are taken over by foreign financial interests. There will be new people, new systems. In these circumstances, the time was never more ripe for an independent commission which could tackle these mighty institutions and not have to depend upon some consensus among the petitioners. The


commission should be able impartially to enforce the law passed by Parliament and have the capacity and weight to take on the mightiest of the financial institutions.

Mr. Alan Howarth: The right hon. and learned Gentleman earlier mentioned that for ten years the Labour party has taken the view that there should be some statutory self-standing independent commission. Many I ask him why, when the Labour party was in government, it did not introduce such a system?

Mr. Smith: As the hon. Gentleman will probably remember, the last Labour Government of 1974 to 1979 did not have a working majority. That apart, the approach taken by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) when he was Secretary of State for Prices and Consumer Protection and I was Secretary of State for Trade was that the stock exchange should be referred to the restrictive trades practices court. It was a perfectly sensible and intelligent policy.
The incoming Conservative Government after 1979, and Sir John Nott as Secretary of State for Trade, adhered to that decision. The Stock Exchange was knocking at the Secretary of State's door shortly after that election asking for that reference not to be made. He took the view that the Government should adhere to the Labour Government's policy. I and my right hon. Friend the Member for Sparkbrook were constantly asked by the Stock Exchange not to refer it. Now that the reference has been removed and we live in completely different circumstances as a result of the deal struck with the Stock Exchange, that argument which always had merit, is essential.
There has also been change with new technology, the speed with which money can be transferred, the internationalisation of decisions and a 24-hour market in every corner of the world. Trying in those circumstances to approach the formidable task of ensuring that the law is observed and administered when it involves some of the most powerful institutions in the world and there is only a ramshackle self-regulating orgainsation to do it is not satisfactory. We need a powerful and independent body. It should be the task of such a body to bring offenders to book. At the moment, all that happens is that reports are made by the police or other organisations and sent to the Director of Public Prosecutions.
It seems that a fairly relaxed view is taken about whether prosecutions should be made. Many factors are taken into account, such as the complexity of pursuing the offender and the length of trials. Rich people can influence the decision whether to prosecute by threatening that, if they are prosecuted, the authorities will have a long and complex task on their hands. The same is not true for social security claimants, who are got into court very smartly. The powerful and the rich, because they can complicate the process, can almost buy themselves immunity from the process of prosecution while having all the rights that the law confers on them.
I am all for simplifying the procedure, if possible, to ensure that we get specialist officers. It will not do any longer for a sergeant in the Metropolitan police to be given the task of bringing to book some of the most devious minds in society. In today's Britain, however, they are given a pretty free hand to make as much money as they

can. All these things can be done, and I hope will be done, but they would be strongly reinforced by an independent body with some clout.
With modernised markets and as a result of the "big bang", the case for an independent commission is overwhelming. One reason why the Government do not share that view is that they do not want such an effective institution as those who are to be regulated are, by and large, the Government's supporters. Such people are doing well at the moment. Industry has declined and unemployment has soared but the new rich have been created—people who manipulate money rather than produce goods. They have benefited from tax changes introduced by the Government and the near-elimination of capital taxation in successive Budgets. They have benefited from the special treatment afforded to high earners in Budget after Budget. They have benefited, too, from a society which admires prowess in making money. Such a culture is being fostered by the Government.
We have seen, however, that people who get rich quickly are not moderate about pursuing further riches. On the whole, the reaction to getting money easily is to try to get even more money even more easily. There is no doubt that the standards in some financial institutions have been affected by the climate that I have described, which has a great deal to do with the Government's economic and social approach.
The Bill provided a chance to do something effective. That chance has been missed. We shall do our best to improve the Bill, but I am sorry to say that an inauspicious start has been made.

Mr. Patrick Jenkin: My right hon. and learned Friend the Secretary of State referred to our right hon. Friend the Member for Chingford (Mr. Tebbit). I echo what he said when wishing him well. I rang up this morning to find out how he had come through his operation. I am told that he has come through well and is making good progress.
The right hon. and learned Member for Monklands, East (Mr. Smith) talked rather more rubbish than we are accustomed to hearing from him. It is right to remember that Professor Gower was asked to make his report in 1981 and that Lord Roskill and his committee were established in 1983—before many people outside had heard of the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). The suggestion that the Government have taken an interest in the problems of fraud only in response to public disquiet in the past few months scarcely bears examination. The right hon. and learned Member rather demeaned the character of the debate with his peroration in that regard.
I know that many others wish to speak so I shall confine my comments to the Bill, Lord Roskill and Lloyd's. I warmly welcome the main thrust of the Bill. My right hon. and learned Friend described it as practitioner-based regulation within a statutory framework. I listened to the Opposition spokesman carefully and I am still at a loss to understand what he hopes to achieve by setting everything in a framework which he describes as a statutory commission—a rigid statutory commission.
I suppose that it would be full state regulation run by people appointed by Ministers and under the detailed and continuing scrutiny of the House. That would be wrong.


The reasons are well stated in a recent speech by the chairman of the Stock Exchange who summed it up admirably thus:
The statutory process is too slow to recognise abuse, too exact in its interpretation of permitted behaviour, and too slow in dealing with offences—if it gets round to doing it at all. If you do not believe me, look at what has happened to insider trading since it became a statutory offence or at the poor record of regulation of dealers in securities directly licensed by the DTI. Changes in the law, furthermore, take too long to be enacted.
In my discussions with people in the United States who are accustomed to operating in markets there, it was made abundantly clear to me that, if they were starting afresh, they would go for a system precisely such as is in this Bill. They would not wish to repeat their mistakes and go for a full statutory system.
London has remarkable financial markets in which practitioners have shown great skill and a talent for innovation and flexibility that has served the country well. Markets need to be able to respond quickly to new needs, new technologies and a new climate. The regulatory system must be able to respond quickly as well.
I spent last weekend in a Group 2000 conference—an Anglo-Japanese group that was set up a couple of years ago by the Prime Ministers of the two countries. One of the subjects that we discussed concerned the differences in access to the financial markets in London and Tokyo. It was said that more than 40 Japanese banks have set up to do in London what they are not allowed to do in Tokyo because it is over-regulated. We urged upon them reciprocity, so that British financial institutions could go and take advantage of the business that is to be done in Tokyo; but the lesson was not lost on our Japanese friends that an over-regulated market is one which actually drives business overseas. If regulation is too rigid and heavy-handed, it fails to allow new businesses to develop and new products to be marketed and these will go to our competitors and not to ourselves.
Therefore, I support the main structure proposed by the Government—if I might so summarise it, supervised self-regulation. As the right hon. and learned Member for Monklands, East said, there is a mass of detail which will require careful scrutiny by both Houses. I think that this will be helped greatly by the document published before Christmas by the SIB entitled "Regulation of Investment Business—The New Framework". I make it very clear that I would support one board rather than two, together with the idea of combining the self-regulating organisations so that there are as few of them as possible to minimise what are obviously the complex problems of conglomerate businesses engaging in a series of separate markets. However, I hope that the extent of the direct regulation by the intermediary body, the SIB, will be as limited as possible and that every effort will be made to devolve the maximum authority to the self-regulating organisations to carry out the day-to-day running.
It is because the SIB has itself to provide for the possibility of it being the direct regulating authority that I think many of the details in that booklet have to be spelt out in great particularity. There is a danger that the intermediary body may itself be too prescriptive and seek to set too standardised a pattern when the very reason for the existence of the SROs is that they are dealing in widely differing markets serving widely differing patterns of investment and therefore needing different regulatory systems. I ask my hon. and learned Friend to say in reply whether even now it might not be possible to have a clearer

distinction between the role of the SIB as the supervisory, and authorising body and its role when it has to authorise traders direct—that is to say, its function as a regulator.
I wish to say a brief word about Roskill. I listened to the Home Secretary's statement this afternoon. I welcome very much the readiness with which the Government have taken swiftly on board the recommendations of what was by any standards a very powerful committee, which has made a formidable body of recommendations. Much has been done. The fraud investigation group is under way. We heard on Monday from my right hon. and learned Friend the Attorney-General that there are to be increased resources for the Director of Public Prosecutions. The Roskill report shows that a great deal more needs to be done. I simply say to the legal professions and perhaps to some of my right hon. and hon. Friends who are themselves lawyers, that I hope that the legal profession will show the same readiness to recognise the need for change in the legal system in the same way that the institutions in the City of London have recognised the need for change. I agree with the statement made in the leading article of The Times on 11 January:
The public will not forgive the legal system if it obstructs the bulk of the reforms.
I should perhaps say at this point that I am, although non-practising, a qualified lawyer and I have no City interest to declare.
In particular I support the proposal that complex fraud trials should be conducted by a judge in a special tribunal with assessors. I support the proposals for limiting the prescriptive right of challenge of jurors. The argument is a simple one. A clever financial fraudster—and some of these men are very clever—is not being tried by his peers if they consist of people who know nothing of finance or who lack the ability to grasp complex transactions. It may well be that the mass of repeated small frauds are successfully prosecuted, but the big ones are riot and that is not satisfactory. It is right that we should look to our procedures in the courts to make sure that we are successful in prosecuting and convicting fraudsters.
The enthusiasm of the Opposition to see more successful prosecutions for large complex frauds may be measured by their readiness to accept the recommendations of the Roskill committee.
I come to my third point, with which the right hon. and learned Member for Monklands, East also dealt—my concerns about clause 40 and the exclusion of Lloyd's. I am bound to tell my right hon. and learned Friend that this exclusion has caused me some unhappiness. I might add that it did not require the disreputable self-publicising activities of the hon. Member for Hackney, South and Shoreditch under the cloak of the privilege of this House to make us aware of the insurance scandals which have without doubt stained the record of an important and valuable institution.
Indeed, in so far as the hon. Gentleman has indiscriminately mixed well-established facts open to anyone who reads the records of the Lloyd's investigatory tribunals with a welter of personal smears and innuendoes, he may actually—as he has been warned by the City fraud squad—be making the activities of the fraud squad more difficult and the prosecutions which he claims to wish to see less easy to attain. The hon. Gentleman is no different from the sleazier end of the popular newspapers in recycling lurid court proceedings for the titillation of their audience. The only difference is that


those newspapers are subject to the laws of libel and slander to which the hon. Gentleman, who well understands these matters, has been very careful not to subject himself. It is, if I may say so, a measure of the changed character of the Labour party that some 40 or 50 of the hon. Gentleman's hon. Friends have joined him in his squalid political vendettas.
My anxieties stem from the other end of the scale, and a wish to restore and enhance the reputation of Lloyd's. It is a hugely important part of our invisible earnings—a huge earner of foreign currency. Moreover, at a time when world capacity for general insurance seems to be shrinking, Lloyd's stands out as able and willing to accept growing volumes of business. Indeed, the chairman of Lloyd's told me only a few days ago that it looks as if the amount of business that will be able to be done in 1986 will be no less than 20 per cent. up on that which could be done last year.
I start from the proposition: when all the rest of the financial services are to be subject to a new regulatory regime of supervised self-regulation, why should Lloyd's be an exception? To this a number of answers are given. First, it is said that Lloyd's runs an insurance business and the new regulatory system concerns investment business; any investment management is clearly incidental—indeed, an intrinsic part of the business of insurance. Technically, of course, that is right, but if one talks to any members of any of the syndicates that have suffered in many cases grievous loss as the result of mismanagment of their affairs by the underwriting agents, I think that they would find that argument difficult to accept. I find it interesting that it is an argument on which not many of those active in Lloyd's place much weight. When people enter a syndicate as names, they are making an investment because they see it as a profitable way to invest their assets and they are prepared to accept the risks. They are as entitled to equivalence of protection as any other investors. I think that is the argument. I do not attach much weight to it.
Another argument advanced by my right hon. Friend, which has much more substance, is that Lloyd's now has its own tailor-made regulating system under the Lloyd's Act 1982. That is quite right, and it is also right to put it on record that all the well-publicised scandals happened before that Act was implemented. It is also right—I hope that people outside the House will note this—to give credit to Lloyd's for what has been done since that Act was passed. A great deal has been done, such as divestment by brokers of ownership of managing agents; a new system of investigation and discipline, which has already dealt with many past offenders; new rules for publishing annual financial reports by underwriting agents; and as important as anything else, new rules and a code of practice covering conflicts of interest, thereby ending the damaging practice of so-called baby syndicates.
All that is already in place, and so it will be with other self-regulating organisations. Therefore, I do not necessarily take that as a conclusive answer.
It is also said that, in effect, Lloyd's is already supervised. There are eight external members of council elected by names, and three members nominated by the Governor of the Bank. In addition, there is the independent

chief executive who is also a member of council and deputy chairman. All that is quite true and is a great improvement on what went before.
But will not many other self-regulating organisations have external members and distinguished outsiders? Lloyd's might argue that the three nominated members—Sir Kenneth Berrill, Mr. Walker Arnott and Mr. Brandon Gough—might come to see their function as entirely otiose and worthless if Lloyd's was subject to the general supervision of the SIB. I cannot speak for those gentlemen and have not consulted them, but I doubt whether that is so. As I have said, we want to see the maximum devolution of the regulatory function to the self-regulating organisations, and all SROs will want to ensure that they are fully qualified and capable of earning the respect and trust of those whose affairs they will regulate. Therefore, that is not a argument to which I attach much importance.
None of those arguments necessarily rules out extending the system to cover Lloyd's, but I agree that they are not conclusive. It was against that background that we had the announcement, with six months' notice, of the resignation of Ian Hay Davison, a man of unimpeachable integrity and ability, whom I have known well for more than a quarter of a century. I think I can accurately summarise his reasons for tendering his resignation. He felt that his independence—essential for the proper conduct of his functions—was being compromised by the relationship that appeared to be developing with the chairman and council of Lloyd's, and that he could not continue to perform his crucial task as an independent chief executive as effectively as had been intended when the then Governor of the Bank persuaded the previous chairman of Lloyd's to appoint him. Much has been said and written about this event, and I have the advantage of having had long and separate discussions both with Mr. Davison and with Mr. Peter Miller, the present chairman.
My conclusion—I put this forward simply as my own view—is that the episode is symptomatic of a continuing division of view within the underwriting community at Lloyd's about just how far they are prepared to let the rules be drawn up and administered with the benefit of continuing expert and independent outside guidance. People in Lloyd's obviously want to see Lloyd's above reproach, while retaining the advantage of a market unique in its skills, enterprise and flexibility. That is a wholly laudable ambition which requires the support of this House, and is similar to the way in which all men of integrity in oher markets are ready to be supported by the device of external supervision.
I would go further: I know for a fact that some in Lloyd's would welcome external supervision as demonstrating their determination to be seen to be concerned to put their house in order. Ultimately that is what this is all about, and that brings me back to the Government's role because there is a political dimension.
Ministers have rightly said a great deal—and it has been welcome—to demonstrate their commitment to securing the highest standards of integrity in our business life. We cannot have it said, however unfairly, that those who cheat the welfare state or the Inland Revenue must be pursued with full rigour but that those who cheat in business may be subject to a less rigorous regime. It would reinforce the Government's determination to rebut this


criticism if they were to accept in principle that the system of supervised practitioner regulation should be extended to Lloyd's
My right hon. Friend has announced an inquiry under a distinguished chairman, whom I have also known for many years, and that will no doubt help to clarify the issues. But in the last resort that cannot alter the political need for the Government to be seen to be doing everything they can to restore confidence in the integrity of our financial markets. I accept that this Bill may not be the right vehicle to amend the Lloyd's Act, but I am quite clear that the extension of external supervision to Lloyd's will have to be done sooner or later. I wish to leave Ministers in no doubt that that is my view.

Mr. Paddy Ashdown: I listened with care to the speech of the right hon. Member for Wanstead and Woodford (Mr. Jenkin) and agree with a number of the points that he made. In particular, the right hon. Gentleman made a compelling and powerful case in relation to Lloyd's
The City—Britain's financial services industry—is a major source of foreign currency earnings, the supplier of finance for our industry—a fact that is all too frequently overlooked—and the place to which individual investors entrust their savings. However, it has recently had its reputation damaged with talk of an infestation of corruption and shady dealings.
Unlike some hon. Members, I do not say that everyone in the City and the City itself is bent, nor will the alliance, like the Labour party, succumb to the temptation of a blanket condemnation of the whole of the City as a wicked capitalist institution—[Interruption.] The hon. Member for Dagenham (Mr. Gould) may object, but I suspect that the whole of the Labour party is not together on this matter, and many members of the Labour party use that rhetoric.
What cannot be doubted is that there is now so much serious concern about crooked dealing in the financial institutions of the City of London that the City's own greatest invisible asset—its reputation and probity—is being undermined. Proper protection for investors, particularly after deregulation—the so-called "big bang"—will enhance rather than diminish the City's primacy and reputation. It will also make it possible for those who will seek to use the City after the big bang to do so with confidence.
But as the right hon. Member for Wanstead and Woodford said, a balance must be struck. On the one hand, the investor must be protected, but on the other, those within the industry must also have a framework within which they can operate efficiently. If regulations are too onerous for potential investors, users of the City of London will simply go elsewhere, and Britain will have lost one of its primary industrial assets and a great source of wealth.
We therefore believe that it is right to combine statutory regulation with self-regulation, as generally outlined in the Bill. Frankly, it would be wrong simply to set up a parallel to the Securities and Exchange Commission in the United States. Such an institution, which appears from the amendment to be what the Labour party wants, would provide a field day for lawyers in that there would always be a squabble about the letter of the law instead of the spirit of the law being enacted. We are in favour of regulation

that permits partnership in a framework of statutory power and policing by experienced practitioners. The statutory framework proposed by the Government is too weak arid in some areas seriously deficient.
Lloyd's has been referred to by several hon. Members, in particular the right hon. Member for Wanstead and Woodford, with many of whose comments I agree substantially. As a first reaction our view is that Lloyd's should be brought within the scope of the legislation. These are complex matters and we do not have a closed mind on them. [Interruption.] Labour Members might like to listen. We are concerned to ensure that something is done about Lloyd's but not to ensure that the purely political rhetoric of the Labour party has primacy. The Under-Secretary of State may enlighten us when he is replying to the debate. There appear to be powers in clause 2 to encompass Lloyd's if that is required. An alternative may be to amend the Lloyd's Act 1982 or to choose another mechanism for cleaning up Lloyd's of London.
We cannot accept complacency over the matter. We do not accept that all is well now as a result of the Insurance Companies Act 1982. The PCW scandal and others occurred before that Act was in place but there is evidence that the PCW scandal was merely the tip of the iceberg and that there are still areas of Lloyd's that cause concern. We do not have to indulge in some of the hyperbole that has been obvious to recognise that. The fact and the manner of the recent removal of the chief executive of Lloyd's, Mr. Hay Davison, give special cause for worry and do not enhance Lloyd's tarnished reputation.
We are prepared to listen to the Government's arguments on what to do about Lloyd's. As some have said, there might be a problem in the Bill over hybridity if Lloyd's were brought within its scope. The Securities and Investments Board, as envisaged, would not have enough power to cope with Lloyd's. Our initial belief is that Lloyd's should be drawn within the scope of the Bill, but we are prepared to judge that issue on its merits and as a result of the forthcoming inquiry, provided that inquiry is not used by the Government, as so often in the past, simply to shelve the matter.
However, we are not prepared to sit idly by and do nothing while the reputation of Lloyd's continues to suffer from rumours of scandal and malpractice. [Interruption.] We hear wonderful comments from Labour Members who clearly are driven more by ideology than by good sense. They seem to believe that they are elected to the House of Commons simply to take the dogma out of the last party manifesto instead of using their brains to come to a sensible conclusion about what might be done.

Mr. John Smith: The amusement on the Labour Benches has been caused by the recollection that the leader of the Liberal party only a few weeks ago called for an independent statutory commission such as I have been advocating. Was that his first reaction or is it the policy of the Liberal party?

Mr. Ashdown: I should like to know exactly what the right hon. and learned Gentleman means by the phrase which he keeps using, independent statutory commission. What we are proposing, as is clear from our amendment, is a commission which would indeed by publicly funded; that would make it independent in all senses of the word. We are talking about a commission which should be independent in precisely those terms but would


nevertheless be able to combine statutory and self-regulatory powers. What is wrong about that? When the Labour party spokesman sums up, perhaps he will enlighten us. What does the right hon. and learned Gentleman mean by the all-embracing and simplistic phrase, an independent statutory commission? What does that mean in detail?

Mr. Nicholas Baker: Perhaps I could help the hon. Gentleman. I declare an interest in that I am a lawyer. It seems that the spokesman for the Labour party wants a Securities and Exchange Commission on the American lines because he wants to promote work for lawyers. That is one of his aims. The other, more serious and worse aspect of the motivation of the Labour party, is to knock, as it does frequently, an institution whose overseas earnings in 1984 were £564 million. That is what the Labour party is up to. The hon. Gentleman might take that on board.

Mr. Ashdown: I take that point on board but in the interests of time I shall move on to other points.
In respect of auditors, we wish to see a specific duty laid down within the Bill for auditors to report frauds which they discover in the course of audit. We accept that that would change the nature of auditors' responsibility. However, it needs to be accepted that auditors could and should be a key line of defence against corruption and that they simply cannot in the modern world continue to place themselves in an ivory tower where their only responsibility is to the firm which employs them.
The SIB should have a duty to draw up criteria for membership of, approve and amend rules for, and arbitrate in demarcation disputes between, self-regulating organisations. The SIB should have a reserve power to order an SRO to carry out its instructions. It, is interesting and contrary to the arguments put forward by the Secretary of State that Sir Kenneth Berrill, the head of the SIB, seems to take the same view—in other words, the onus should be on the SIB to act independently and others should seek redress if the law has been overturned.
The statutes of each SRO should set out a clear line of responsibility for imposing rules of conduct. There will be a real problem within SROs with cross-membership and lines of demarcation. We need to know who is responsible for what, and where the responsibility lies. In passing, as was also mentioned by the right hon. Member for Wanstead and Woodford, there could be a significant danger in allowing too many SROs to exist. A careful eye will have to be kept on that.
We wish to see assurances that there will be a strong lay element in the managing bodies of the regulatory authority and the SROs. The appointment and removal of all SIB board members, who should be full-time, and appointments to the chairs of SROs, should be made by the Secretary of State for Trade and Industry and should be subject to parliamentary scrutiny.
Those are realistic and significant proposals for strengthening the statutory framework within which the City of London can put its house in order. We are prepared to see the statutory framework tightened further if the City is unable to ensure that the self-regulatory element is properly enforced and effective.
As to enforcement and prosecution, the resources allocated by the Bill to investigating and prosecuting fraud

are wholly inadequate and will remain inadequate even with the additional resources announced by the Secretary of State on 10 January. Hitherto the failure of enforcement has been notorious in quantity, quality and attitude. The quantity of enforcement is a function of the resources which the Government must commit. That has been touched on by other right hon. and hon. Members. In regard to attitude, no system of regulation will work unless the City wants it to and makes it work. That is why we support a degree of self-regulation.
Achieving the necessary quality of enforcement will not be easy. That is why wiser heads in the City see clearly that unless the brightest and best professionals are working in enforcement, it will not succeed. Indeed, second-rate enforcement paradoxically encourages the wide boys. Therefore, we urge the Government strongly to accept that the enforcement arrangements should satisfy some key criteria. First, enforcement and prosecution functions should be separate although they should liaise closely. Secondly, we are opposed to an enforcement agency which is part of the Department of Trade and Industry because we are unimpressed with the Department's record in policing the City. That should be the exclusive responsibility of a separate enforcement arm of the SIB. The enforcement function should be conducted by experienced practitioners in the City. Service of that nature should be seen as an enhancement to a general City career.
Thirdly, prosecution should be handled by a special unit of the independent service with exclusive responsibility in the same area. Finally, in so far as the police are necessarily involved in some matters because of their special statutory powers, the City fraud squad should be retained but should be considerably enhanced. As with all other aspects of the Bill, there will be boundary problems, but bestowing exclusive powers in respect of the City on this triumvirate of special units offers the only chance of that success in enforcement without which the rest of the Bill is so much hot air.
These regulations should be seen at best as putting the City on probation. If they prove inadequate for the protection of individual investors following deregulation, they will have to be reviewed and strengthened. The Bill proposes a system primarily balanced towards practitioner regulation. It may be that, in the light of developments, we move further and further towards transaction regulation. Review and subsequent adaptation are vital. I note that there is a provision for review in clause 99. In our view, the reports rendered under this clause should be subject to annual parliamentary debate.
It is possible to welcome the fact that the Government have brought before us a Bill to reform the City of London, but it is not possible to welcome the Bill as the instrument of that intention. It is inadequate to the great task that it purports to set itself. The City is a vital institution. We have no wish to see it destroyed or so emasculated that it cannot continue to perform its vital function for Britain. We have no wish to see the City hogtied with the sort of regulations that seem to be proposed by the Labour party's amendment. Nor do we accept the apparent complacency contained in the Government's proposals. We shall vote against the Bill tonight to show our view of the inadequacy of the Bill as presented. However, if, as I imagine, the Bill goes through, we shall have to fight to see that the reforms that I have advocated tonight are incorporated into the Bill in its final form.

Several Hon. Members: rose—

Mr. Speaker: Order. Before I call any more hon. Members to speak, I point out that I have a long list of hon. Members who wish to take part in the debate. I have no authority to limit speeches to 10 minutes, but I hope that hon. Members will bear in mind that such a limit on speeches would be helpful to their colleagues.

Mr. Alex Fletcher: I listened carefully to the speech made by the hon. Member for Yeovil (Mr. Ashdown), which I think showed the impact of the new alliance politics in Britain, because if I understood correctly, the hon. Gentleman seemed half to accept the Bill. No doubt, in an hour or so's time, his colleague in the SDP will half reject the Bill and then we shall have some idea of what conclusions to draw from their joint speeches.
I congratulate Ministers in the Department of Trade and Industry on the way in which they have presented the Bill to the House. As the House knows, my right hon. Friend the Member for Chingford (Mr. Tebbit) worked hard on the White Paper during his stay in hospital. Unfortunately, he is again in hospital as we debate the Second Reading. I know that he will appreciate the wishes of the House, and the remarks of my right hon. and learned Friend the Secretary of State in opening the debate.
I am completely unbiased—I think that this is a splendid Bill. I shall make two comments about its content. One issue that has come up in every speech, not least in that of the right hon. and learned Member for Monklands, East (Mr. Smith) is why there is not an SEC. Another issue, which has also been mentioned by all speakers so far, is the importance of the enforcement powers in the Bill.
The critics of the Government's proposals opt for some kind of independent statutory commission, SEC or whatever, and this is seen in the Opposition's amendment. However, this has more to do with familiarity with a Government-type commission in these circumstances than with a rejection of the statute-backed self-regulation proposed by the Bill.
Many of us are familiar with the SEC in the United States and similar organisations in Canada, Australia and elsewhere. We are also aware that most EEC countries have heavy governmental control in investment business and insurance. Therefore, it seems to me that the reflex reaction in a debate such as this is to opt for something of the same sort—a a Government-controlled commission. However, our needs are different. The United States, Canada and Australia all have federal structures. Therefore, in the case of the United States, Washington needs an agency to apply federal rules and regulations throughout the country. We have no such problem so on that count alone we are different and need to examine the situation differently.
Government regulation in Europe has stifled the development of financial services, not just internally but in the development of financial services throughout the Community. We do not wish to go down that road. Our need is for a system of regulation that builds upon the best that we have at present, and the stock exchange is an excellent example of self-regulation. We have to make the best comprehensive so that it covers all investment business.
It is important, the Bill proposes, that the United Kingdom is subject to a high standard of regulation or, as I would use the term, investor protection. The Bill demonstrates how this can be done without a Government-type statutory body. In explaining the particular system that the Bill proposes, our biggest difficulty is in the use of the words "self-regulation" as if compliance with the new laws and the rules that will stem from them were voluntary.
The Bill makes it abundantly clear that this is not a "take it or leave it" voluntary system. On the contrary, all investment business will have to be authorised by a recognised regulatory body. Therefore, regulation or investor protection in the United Kingdom will be just as compulsory and comprehensive as elsewhere. Perhaps the major benefit of the Bill is that it proposes a system that will be more flexible and therefore more responsive to the needs of fast-changing domestic and international markets—much more flexible and responsive than any type of statutory commission. Therefore, the new regulatory system proposed in the Bill will form a new first line of defence against fraud and malpractice.
I say this because, for the first time, we shall have legislation that requires all investment businesses to be authorised by licence, and because I expect the Securities and Investment Board to introduce stiff audit requirements as part of the fraud prevention process. As a result, the detection of fraud should be enhanced and remedial action should be more immediate. Similarly, complaints from investors should be dealt with more effectively than at present.
It is important to remember that these steps will be entirely additional to the powers that the Government already have at their disposal to deal with fraud or suspected fraud—for example, the powers under the Companies Acts available to the Department of Trade and Industry to appoint inspectors to wind up companies. What matters here—by a happy coincidence, this has already been touched on today by the statement on the Roskill committee—is that the resources available to the Department should also be enhanced to match the powers available in the new regulatory system.
As my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) pointed out, the Government have already taken a number of steps in this direction, such as the Roskill committee, looking at the receivers in court cases, the rules of evidence in jury trials and so on, which is all part of the process of dragging the legal profession into the latter half of the 20th century.
My right hon. Friend also spoke of Lloyd's. The Government have put a sensible proposition to the House. It is correct to say that the Bill is not suitable for amending the Lloyd's Act. I have been critical of Lloyd's over the past few years, but we need to give it more time—the Government say Lloyd's should have until the end of this year—to satisfy the Government as well as public opinion that it is putting its house in order. To back that up the Government have announced the setting up of an inquiry. That is the correct preliminary step for any legislation that might be necessary in the next Session of Parliament.

Mr. Cash: I hope that my hon. Friend will also accept that clause 43 empowers the Secretary of State to remove Lloyd's exemption, so that if, after the inquiry he has now


announced, he was not satisfied, he would be able to take the exemption away from Lloyd's anyway. That answers all the points that have been made.

Mr. Fletcher: Another process in the steps that the Government have taken is the passing of the new insolvency legislation that puts greater duties and responsibility on directors. That includes the directors of financial services companies.
In the matter of staff resources the Government need more properly trained and experienced in-house staff to make the enforcement powers work for example, in the Solicitor-General's Office, the Department of Trade and Industry, the company investigation branch and the insolvency services. I welcome the Roskill recommendations and the Home Secretary's statement this afternoon. It is not enough to agree to additional staff numbers. The Treasury must permit the salaries offered to the staff to reflect the market value of the qualified and experienced people that are needed if the Government's attack on serious financial fraud is to succeed.
The Home Secretary referred to the Roskill recommendations for a unified command of fraud investigation. He said that it was being pursued by the Chief Secretary. My right hon. and learned Friend the Secretary of State will know that the last time that that was pursued within Government the Departments failed to agree which of them should be in command of a unified fraud organisation. I hope that in view of the firm recommendations of Lord Roskill the Prime Minister will determine which Minister, and therefore which Department, should take command of a unified structure. Clearly, Roskill has confirmed that, although the fraud investigation group is only a year old, the present split command is inadequate and requires urgent reconsideration at the highest level.
I support the suggestion to engage experienced professional people on short service engagements. They could be lawyers and accountants in their fifties who are approaching retirement or who can retire early who have had experience of audit work. I am not speaking for myself. My hon. Friend the Member for Kingswood (Mr. Hayward) is looking at me quizzically. I am not retiring yet. Certainly, there are people with that type of experience who could do an invaluable job in helping to investigate fraud. I think that it is a good idea to offer those short service engagements to those who might need them in the future.
It is important to remember that the Bill is not an emergency measure that has been brought before the House because of stories about alleged fraud at Lloyd's or Johnson Matthey Bankers or elsewhere. As my right hon. Friend the Secretary of State said, the origins of the Bill go back to July 1981 when the then Secretary of State asked Professor Gower to undertake a review of investment protection. That excellent report was published in January 1984 and led to the January 1985 White Paper which was a follow-up to the July 1983 decision to remove the barriers to competition in the financial sector. The right hon. and learned Member for Monklands, East (Mr. Smith), who opened the debate for the Opposition, referred to the chummy agreement made between my right hon. Friend the Member for Hertsmere (Mr. Parkinson) and the stock exchange. That was a view that some people

held then. For all I know, the stock exchange held that view. I know that now the stock exchange, among others, realises that there has been a strong blast of competition through all of the City institutions. The Bill has not been prepared in a rush to meet a crisis. It is a more positive measure than recent comments might suggest. It is aimed at giving investors, at home and abroad, even greater confidence in the United Kingdom as a place in which to do investment business. It is aimed at encouraging wider share ownership and bringing share ownership opportunities to every high street in the country. It is aimed at imposing share shops and generally removing much of the mysticism surrounding personal investment. In other words, it is aimed at enhancing and expanding the financial services sector of our economy. I believe that in the Bill the Government are demonstrating their commitment to a proper and comprehensive system of investor protection. The financial sector in the City and elsewhere in the country must make an equally firm commitment if top quality people and financial resources are to be available to ensure the success of the new system. It is only a partnership of Government and industry that can ensure the success of the legislation.
I am glad that Ministers have made it clear—the Secretary of State said so again today—that, while sticking to the principles surrounding the Bill, they will take a constructive view of the opinions of others. With the best will in the world a Bill is inevitably a different animal from a White Paper and many ideas will flow from the City and elsewhere to members of the Committee. I am glad that the Government will be constructive in listening to any proposals that may be made. There are many important details to be discussed in the Bill and all that I can do is wish it every success in Committee.

Mr. Brian Sedgemore: I will begin by ignoring the inelegant personal abuse of the right hon. Member for Wanstead and Woodford (Mr. Jenkin). The answer to that lies in the 800 or so letters and the 50 Christmas cards that I received backing me in the campaign to clear up fraud. The card that I liked most was sent to me by Mr. Peter Middleton who is the permanent secretary of the Treasury. It is a picture of Siena in Tuscany. I believe that Peter Middleton must have known that when I went on my Florentine holiday in the summer of 1985 I was going to spend some time in Siena looking at the banking practices of the Medici in order to compare them with those of the current Bank of England.
The only point that I want to concentrate on is the exclusion of Lloyd's from the Bill. I wish to argue that Lloyd's should be brought within the ambit of the Bill. There are two reasons for that. I believe that the evidence that Lloyd's is prepared to cover up for top people cannot be disputed, and I believe that there are too many people at Lloyd's who do not accept the rule of law. I know that some Conservative Members prefer a general philosophical debate to hard fact, but they will have to listen to a few hard facts. The matter of covering up for top people is important in any society or organisation.
I put down some early-day motions criticising Sir Peter Green, the former chairman of Lloyd's. He responded, as he is entitled to, on Thursday 9 January. His response has caused consternation at Lloyd's because it is unusual for a defendant to point a pistol at his own head, pull the


trigger and blow his brains out. I do not believe that special treatment should be given to Sir Peter Green, and I am therefore calling on Lloyd's to help the House to decide whether it should be brought within the Bill to answer the charges that arise out of his defence. He says that I have been unfair in my criticism of the way in which the Imperial reinsurance scheme works. Members of the House will know that Imperial reinsurance is a non-risk reinsurance policy and that it is a banking policy designed to evade exchange control and avoid taxation.
In the light of that I was astonished to read this sentence from Sir Peter Green, as were many people at Lloyd's to whom I have spoken subsequently.
We were advised by the brokers that such terms were at least as good and in some cases better than any other similar cover available in the Market. In the circumstances, Imperial was entitled to the interest it retained.
I invite any right hon. or hon. Member to intervene if he wishes. The purport of that statement is that it was open to the directors of Imperial, including the past chairman of Lloyd's to steal the interest on the money in Imperial. That was the basis of one of the charges against Ian Posgate, and of one of the charges in the Brooks and Dooley case, and it is the basis of one of the charges being examined in the Bellew Parry Raven case. It is extraordinary that the chairman now admits to what is effectively theft, and, by my calculations, that theft involves over £3 million.
Lloyd's should make a statement tomorrow on why it has been several years before charges have been brought. Lloyd's should say that it is about to charge Sir Peter Green with theft in relation to the Imperial policy and the interest, with a breach of fiduciary duty and with a conflict of interests. If Lloyd's does not do that, it should give us a public explanation. Is it because there has been an agreement to protect the top person at Lloyd's? That would be scandalous, and every Conservative Member would agree if that were so.
Secondly, Sir Peter Green makes the extraordinary statement: "I have paid the tax, or at least the tax which I have not paid, I am about to pay." However, in the statement he does not say why the chairman of Lloyd's had discussions with two Governors of the Bank of England—Lord Richardson and Robin Leigh-Pemberton—and why eventually he was told that he should step down at the first available opportunity. He has not told the people what the settlement was that he eventually reached with the Inland Revenue about the non-payment of tax and whether it involved hundreds of thousands of pounds or—I use my words advisedly—millions of pounds.
The way in which Sir Peter Green covered for Peter Cameron-Webb over the Unimar scandal and the way in which Lloyd's has carried out no proper investigation into that scandal—I know about the Tuckey inquiry—bodes ill for self-regulation at Lloyd's
There is only one basic question that should have been asked about Unimar. Did Sir Peter Green try to find out who the beneficial owner of Unimar was? If he did, he was dishonest in not revealing it to the names. If he did not try to find out, he was grotesquely negligent in his inquiry and never intended to reach a successful conclusion.
I am told that in that inquiry by Sir Peter Green, he had access to all the papers and asked all the right questions. If he had access to all the papers, he had access to the papers that I have in my possession—for example, the

letter from Mr. Banyard to Mr. D'Ambrumenil, dated 5 December 1978. Whether Sir Peter Green read it is another matter. The letter said:
I have prepared all the documentation in respect of the P. Cameron-Webb Whole A/C Q S Treaty for the 1st half of 1978 … I disagree that they should be issued and will not add my name to them as I am not satisfied that there is not some element of non-disclosure or misrepresentation in the placing of the Treaty.
Furthermore, by giving the 10 per cent. overrider to Unimar the members of the Syndicate will lose this income which amounts to approximately £200,000. It also appears unrealistic to expect £200,000 net profit to the Syndicate under such an arrangement as, taking an average profit on Treaty business at 5 per cent., this would call for a Gross Premium Income to the Syndicate of £4,000,000.
I have no intention of resigning either from Seascope or the Syndicate as I feel fully justified in my refusal to administer this account until such time as it is put right and handled in a proper professional manner.
Mr. Tucker and Mr. Cole join me in those views and so I believe do Mr. Tobin and Mr. Proctor. Mr. Cole and I could not authorise any of the staff in our Department to process this Treaty in the way suggested by Unimar.
If Sir Peter Green had the access to all the papers that he said he had, he had access to the letter from Mr. Tucker on the day he resigned from Seascope, the company that administered the scheme, dated 30 August 1979 He wrote:
If it is perfectly legal, why does not Cameron-Webb himself pay the commission (it will probably be in excess of £400,000 by early next year to this Monte Carlo Company). If it is perfectly legal why does Mr. D'Ambrumenil refuse to obtain Bank of England permission and that of the Committee of Lloyd's as I have repeatedly requested?
If Sir Peter Green had access to all the papers, he had access to this letter from Mr. Tucker to Mr. D'Ambrumenil dated 17 September 1979:
As you know I have been very concerned about the payrnents made on your instructions to Unimar in Monte Carlo … I was told that the Company's lawyers, Morton, Rose, Botterell and Roche, had advised on the matter and that I could see the advice but, in fact, this has been subsequently refused.
If Sir Peter Green had the access to all the papers that he said he had, he had access to this memorandum from Mr. Tucker, a director of Unimar, in which he said:
The Treaty was placed on the terms of the Treaty as set out in the papers, notably a 10 per cent. overrider and 2·5 per cent. brokerage. Later I was informed that out brokerage was to be halved and given to a broker called Unimar in Monte Carlo. This was unusual firstly because I had never heard of the company—subsequently I found out that Unimar did not exist prior to the Treaty placement. Secondly, the request came from Cameron-Webb, bearing in mind Lloyd's Underwriters are expressly forbidden to deal with anyone except a Lloyd's broker. Thirdly, no check was made on Unimar and no information given, which was abnormal.
At the next Executive meeting I maintained that the Unimar payments were illegal and required Bank of England approval, and even if this was forthcoming, I doubted that the Lloyd's Committee would agree. Privately this latter point had been confirmed to me … I refused therefore to handle the Cameron-Webb Treaty and informed the Board that I was advising the staff in my division to have nothing to do with it.
Perhaps Sir Peter Green was influenced by the letter, dated 24 June 1982, from Peter Cameron-Webb and Peter Dixon, who are spending the proceeds of their ill-gotten gains in foreign countries. It admits that the contract and the treaty never expressed the intention of the parties. It claims that they tried to rectify the terms of the contract and the treaty in 1979 but somehow everyone forgot and it was rectified only in May 1982. The letter goes on to assure Sir Peter Green that the contract and the treaty were always honestly administered.
Could anyone conduct an inquiry with such background and with such documents, and simply present an oral, not written, report to the Lloyd's committee: "I am satisfied that everything was all right"? At least there must be a prima facie doubt in the person's mind. It is outrageous that Lloyd's has carried out no inquiry into that.

Sir Peter Tapsell: In the past, has the hon. Gentleman submitted all the documents that he has just read to the House to the Director of Public Prosecutions? If not, the speech that he is now making will make it extremely difficult to bring anybody to trial.

Mr. Sedgemore: I am sure that those documents are and have been made available to Lloyd's.

Sir Peter Tapsell: I asked about the Director of Public Prosecutions.

Mr. Sedgemore: The point about the Director of Public Prosecutions is that he will want the papers from the Lloyd's inquiry, which has not been held, to process the matter. Whether he will process it quickly, I do not know. The answer is that, as far as I know, he does not have those documents, but I cannot be certain about that.
In an early-day motion, I also asked that the relationship between Janson Green and Cresvale Securities be examined. In Sir Peter Green's defence, there is a document which he supplied, from Mr. Valentine, who is connected with Cresvale Securities. He says that there has been an inquiry into Cresvale Securities and Janson Green. It was undertaken by Lloyd's, the Department of Trade and Industry and the Bank of England. This information was given last Thursday. That is astonishing.
I telephoned Lloyd's and I have also spoken to those who are advising me on these issues. I did not find a single person at Lloyd's who had heard about any of these inquiries. If Lloyd's has conducted an inquiry, what were its terms of reference, when did the inquiry take place, who carried it out, what were the results of the inquiry and where is the report? Similar questions must be asked of the Bank of England. I am sure that the Under-Secretary of State for Trade and Industry will be able to tell us whether the Department of Trade and Industry has carried out an inquiry.
However, my point is this: is it possible in this day and age for three major institutions to carry out an inquiry, but for nobody—I do not know whether any Conservative Members know anything about these inquiries—to know about its existence? Is Mr. Valentine's information false? I believe I am entitled to say to the House that there has not been a proper investigation of the ex-chairman of Lloyd's. Is that the climate which still exists at Lloyd's? Mr. Peter Miller went to the City forum, which I addressed recently, and said that nobody would get an amnesty and that there would be no cover-up. That suggests that there should be outside regulation.
My last point relates to Lloyd's not liking the rule of law. This is a very important point. A number of people said that they believed that they were defrauded by managing agents at Lloyd's. Whether or not they were defrauded is another matter, upon which they can go to law. However, they said that they believed that they were defrauded and they decided to take legal action. When they decided to take legal action, they also decided to

change their syndicate. However, when they tried to change their syndicate they could not get into another one. The only reason given for the refusal was that they were taking legal action against their previous syndicate. That is an abuse of the rule of law. Every citizen of this country has the right to go to the courts to try to establish legitimate, legal redress.
When I told people about this they said, "Well, Mr. Sedgemore, you are not telling us anything new. That is widespread at Lloyd's." I am horrified to find that Mr. David Coleridge, who only recently relinquished the post of deputy vice-chairman at Lloyd's, wrote a letter dated 2 June 1983 to a person who has decided to exercise his legal rights according to the laws of England, in which he said:
However, my dislike of taking any transfer name, who is contemplating litigation with his former Underwriting Agent still remains. I think I ought to tell you also that Three Quays Underwriting Management Limited, (the Underwriting Agency for Non-Marine Syndicate 190—Dick Hazell) has informed us that they would not accept you on their Syndicate through our Agency if you do decide to transfer.
I am told that there are countless—no, not countless, that is an exaggeration, but many—examples of that happening at Lloyd's. If Lloyd's is not prepared to accept the rule of law and to act without fear or favour in relation to top people, that is surely the most powerful argument one can provide for bringing Lloyd's within the ambit of the Bill.

Sir William Clark: Despite your plea, Mr. Speaker, we have listened to a 17 or 18-minute speech from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) which had very little to do with the Second Reading of the Financial Services Bill. He used those 17 or 18 minutes to continue his sordid, scurrilous attack upon people in the City, although he is absolutely scared stiff to make those allegations outside the House. He is abusing parliamentary privilege. The only comfort that we can draw from this is that even hon. Members of his own party do not agree with him. [HON. MEMBERS: "Name them."]
I welcome the Bill. It proves that the Government have taken the initiative. I pay tribute to my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher) who did much of the work on the Bill. However, we should be careful not to provide too much regulation. As my right hon. and learned Friend the Secretary of State for Trade and Industry has already said, the City is an extremely important part of our economy. It represents about £6 billion of invisible earnings. The City also provides jobs for 2 million people. We must treasure this.
However, the Government were absolutely right to introduce the Bill. It provides my right hon. and learned Friend the Secretary of State for Trade and Industry with many powers which he can delegate to the boards. The Securities and Investments Board and the self-regulatory organisations will contain outside members. We must make certain that the SROs and the SIB are absolutely independent and that they do not consist only of members of a particular industry. Any future action that is taken must be swift. In the past there was delay in initiating action on fraud. However, the key factor relating to the SIB is that it should be provided with sufficient teeth to discover whether or not fraud has taken place. It is right to leave it to the professionals to run the SIB provided that


lay persons serve on it, too. The right hon. and learned Member for Monklands, East (Mr. Smith) said that the Labour party has been committed for 10 years to the establishment of a statutory board. Why the Opposition did not establish such a board when they were in office I do not know. If they had felt so strongly that a statutory board was needed, they could have established one.
We must, however, make absolutely certain that no member of the SIB or the SROs can be sued for libel or slander when they carry out investigations of firms or companies. The members of the council of the stock exchange are indemnified from legal action. I understand that the SIB has provided itself with such an indemnity, but the SROs will be doing the work. They will discover whether or not there has been fraud. They must therefore be provided with a similar indemnity; otherwise it will be very difficult to persuade laymen to serve upon them. That applies in particular to the international SRO.
I have to declare two interests. I am a consultant to the Life Insurances Association and to the Commercial Union. My right hon. and learned Friend the Secretary of State for Trade and Industry referred to licensing. I believe that there should be a licensing system for salesmen of life assurance, whether it be straight life assurance or whether it be connected with a pension scheme. However, it should be qualified. That is what happens if one belongs to a profession. Accountants and lawyers are provided with exemption because they have passed examinations. Provided that it is qualified, licensing would solve many of these problems.

Mr. Alan Howarth: Will my hon. Friend give way?

Sir William Clark: I hope that my hon. Friend will forgive me if I do not give way. I am trying to keep within the 10-minute time limit.
Clause 41 seems to deal with commissions; that point should be discussed in Committee. There seems to be a difference in the treatment of agents. Tied agents are exempt persons and I see no reason why they should be treated differently from agents who are not tied. It has been pointed out that, particularly with the conglomerates, it may be necessary for firms or companies to belong to one or more SRO. There may be some administrative difficulty with that, but that is a major point.
In its new form, the SIB needs to be strengthened. One may compare the stock exchange, which has a staff of more than 2,000 people, with the' staff of Sir Kenneth Berrill numbering 40 to 50 people. When such a small body takes on such a mammoth task we must ensure that it is properly staffed. The SIB should be able to take swift action. If anything is wrong, immediate action must be taken and the DPP must be alerted. I welcome the fact that the fraud squad is to be expanded.
I also welcome the possibility of recommendations in the Roskill report being accepted, particularly in the case of large frauds. Lay members of a jury in a case that may last a year, a month or two months become lost and baffled by science. Consequently, it might be a good idea to have the tribunal system for large frauds.
We can maintain the confidentiality between client and auditor in relation to the completion of audits. If an auditor qualifies an audit certificate, it should be automatic that he immediately informs the SRO or the SIB. That would not affect confidentiality because, if an auditor should see

something out of order in the accounts, he can question the client and explain to him that reference must be made to that matter in the audit certificate.
I am pleased that the regulations will insist on clients' accounts. There is a loophole in the law that allows many companies to take money from the public for investment or from those going on holiday. That money should go into a clients' account until that contract is completed. That would remove the difficulty that exists, particularly in the travel industry, where firms have gone broke or into receivership and the deposits paid by the would-be holidaymakers have been lost. There would be no question of the receiver having a lien on a client's account.
In future there will be a banking supervisory Bill, and the Lloyd's inquiry. The Lloyd's scandals which the hon. Member for Hackney, South and Shoreditch is so keen to publicise under parliamentary privilege, all occurred before 1982. Since 1982, the Bill has tightened up the position.
I do not think that it is of much moment whether Lloyd's comes under the Bill. That is not a major issue. In view of our reform of social services, the upsurge in the pensions business and the increase in the number of small investors because of our privatisation programme, it is essential that we give maximum protection to ensure that the small investor is safeguarded. I welcome the Bill as a step in that direction.

Mr. Austin Mitchell: There is something rather odd in the arguments presented by Conservative Members. The essence of what has been said is that there is something slightly rotten in the state of the City though it is not quite as rotten as my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) implied. Conservative Members say that we do not need to do very much about that. They believe that the Bill, which does not do much, will in the end be satisfactory because we must trust those who created the problem in the first place.
In answer to that, I must state that the Bill is unsatisfactory considering the circumstances and the Government who produced the Bill. The Bill must be considered against an extraordinary background of fiddle and fraud. That might be acceptable to Conservative Members, but ordinary people in the kind of constituency that I represent are aghast and puzzled at what is happening.
The City seems to have shown the ethics of Thatcherism, the spirit of grab and greed and "do it quickly because the country is on a downhill slope" coming home to roost almost like the last days of a decaying empire.
There has been the JMB scandal. On a lending portfolio of £500 million, £248 million was suspect. There is the scandal at Lloyd's—the school for scandals—which has exceeded even its best efforts of the 1970s in the PCW affair with £130 million-worth of losses. Cameron-Webb and his associate made off with an estimated £40 million and no prosecutions resulted. There have been fiddles in the applications for British Telecom shares, with merchant bankers and others making a killing on the applications as well as the killing they were making in fees for their professional services.
Money is being made from the Government's privatisation programme and on top of that there is the frenzy of bids, takeovers and mergers pouring the credit


and money available not into investment to provide for the country's future or into jobs, but into a frenzy of speculation. It is no wonder that there is an aura of sleaze hanging over our financial institutions. That is undesirable.
The Government are trying to legislate, but this Government represent many of the vested interests that caused the problems in the first place. One in seven Tory Back Benchers is a member of Lloyd's. The Conservative party has not been too nice about selling honours in return for contributions to the Conservative party's political funds. That party has not been too nice about selling the country's foreign policy in endorsing star wars in return for the hope of contracts to come—though they are almost certain not to come—from the American Government.
The Government's attitudes and ethics are guiding the legislation and it is no wonder that the legislation is unsuitable. Springing from such a background, the legislation cannot be satisfactory and it is hard to resist the conclusion that the Government do not know what they are doing. They commenced with an instinct to do as little as possible, to give power to the boys, to allow them to regulate themselves and not to disturb them too much. The result is the botched job that is the Bill before us. That botched job attempts to deal with a changing situation which is moving too fast for the Government and which will soon be out of control unless strong action is taken to control it.
The measure is vague and at the same time extremely complicated. It gives power to the Secretary of State on the assumption that he will delegate to a body about which we know very little. That body in turn will delegate powers to SROs, most of which have not been set up and therefore have no experience.

Mr. Barry Porter: The hon. Gentleman has made certain assertions about hon. Members and their connections. At least his hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) had the courage to say who those people are. Will the hon. Gentleman give more details about the assertions that he makes?

Mr. Mitchell: The only assertion I made was that one in seven Tory Back Benchers is a member of Lloyd's. If the the hon. Gentleman is interested he can look that up in the Register of Members' Interests.

Mr. Maples: As one of the one in seven Conservative Members who is a member of Lloyd's, I must say that the hon. Member for Great Grimsby (Mr. Mitchell) and his hon. Friends are missing the point. Those of us who are members of Lloyd's are deeply concerned about what has been happening there. The enhanced protection given to members of Lloyd's could surely help us and for that reason we are not standing in the way.
We feel that a designated agency to deal with the securities business in the City of London is not the appropriate statutory vehicle for regulating insurance. The frauds that have taken place in Lloyd's are essentially insurance frauds and if there is an agency to control that problem it should be one to deal with insurance aspects. It should not be confused with the board set up to deal with the business of securities.

Mr. Mitchell: The answer to that is to change the definition of investment and to appoint a special SRO to deal with Lloyd's.
The Government, with their background, are suspect in any decision that they take about Lloyd's. The question that hon. Members who are members of Lloyd's have to answer is whether there should be effective supervision of Lloyd's, given what has been happening there. If they feel that there should be, no doubt they will support our efforts in Committee to get Lloyd's included in the Bill. That would be the most simple, straightforward and direct way to deal with the problem.
Power is delegated to the Secretary of State, who will hand it on to a body of which we know nothing, which will pass it on to SROs, most of which have not been appointed yet, and therefore have no experience, to operate on a principle about which we know nothing and on the basis of powers that they will not have, using regulations about which we know nothing, particularly as regards the important problem of conflict of interest.
In that framework, no one will have power over the SROs and everything will overlap, particularly the jurisdiction of the SROs over the players, many of whom will work under competing jurisdictions.
Finally, the major problem of Lloyd's is excluded from the legislation. It is amazing that Lloyd's has only just required its syndicates to offer a "true and fair" account. Indeed, it was argued that if that requirement were brought in too quickly, 130 of the 530 syndicates would not qualify, because their accounts would not be appropriate.
With all those confusions and gaps, the legislation can only be characterised as typically English, typically complacent and not good enough. The only solution to the problems confronting us is the sort of statutory institution which virtually every other capital market has established. They have institutions regulated by a statutory authority.
Such an institution would fulfil all the requirements in this instance. First, it would be independent and would be seen to be independent. It would be seen to be a custodian of the public interest and of the interests of the small investor and not the custodian of vested interests and those involved in markets. This is not a question of running the prison by allowing the prisoners to take it over; the institution should operate independently and on behalf of the public.
A statutory institution, with a legal base, would have the power to impose its will on the SROs. That is what we need. If the SROs refuse to do what they are asked to do, what will happen? I know that they could be derecognised, but that is the equivalent of dropping an H bomb on them—the ultimate deterrent. That is not an adequate power. We need a statutory authority with the power to impose its will on the SROs if there is a conflict or if they do not move fast enough or cannot cope with the situation.
A statutory institution would have the power to institute prosecutions. The suggested body would not have that power. We need the power of independent investigation and prosecution.
Finally, the statutory authority would need to be strong, because of the uncertainties that lie ahead. We are entering a period of rapid change in technological innovation and in the internationalisation of competition. We do not know what the consequences of the big bang will be.
If we wish to compete, we do not want to have to offer a sleazy, amateur version of Liechtenstein, where we hope to be attractive because regulation is less effective here.


We need regulation to be more effective and we must lead the way in the international harmonisation of regulation which must come. That is why we need a statutory authority.
The consequences of change are unpredictable. We can foresee the domination of the gilt market by two big players, both of them American. What implications does that carry for Government funding? We can foresee the domination of the stock market by big players, with the slaughter of firms and the slaughter of jobs and a takeover by two species of organisation—the international players who are big enough to survive the lean years and the banks, using the profits from their financial business, which has always been operated in a fashion that is harmful to the needs of long-term investment and productive industry.
We need a strong institution with power to take strong stands and to impose its will. If we wish to impose a recognition of the national interest, we must consider who is to be the custodian of that interest in the rush towards liberalisation and a more effective competition.
We must have a strong, effective, independent regulatory organisation with a statutory base. We do not need the confusion, uncertainty and casualness of the legislation.
At one end we are dealing with huge problems of scale and with disciplining and controlling powerful international institutions. At the other end, we need the power to protect the small investor who needs more protection than he is likely to receive from the legislation. It is open to doubt whether the small investor will get enough protection when self-regulation by the ethical wide boys is introduced. We need a strong enforcement agency to provide protection for the small investor.
We also need new rules and it is not clear from the December document on the regulation of investment business that we shall have the firm rules and regulations that the small investor needs. According to that document, even the basic requirements will not be forthcoming or will be introduced only in a half-hearted fashion. It is essential that there should be no cold calling. The document envisages that there could be cold calling, subject to a cooling-off period.
It is also essential that there should be full compensation—or at least 90 per cent. compensation—to investors if an investment business becomes insolvent. In fact, a compensation limit of £30,000 per customer is envisaged.
It is essential that independent intermediaries should have to declare their commission so that anyone who is having policies or investments pushed on him can assess what is in it for the person pushing them and his motives for pushing them. In the December document, that issue is fudged. It seems that no requirement for such a declaration is envisaged.
There is a need for a prominent statement of the cash-in, surrender or maturity values of policies, but it is not clear whether we shall get that requirement. There also needs to be a statement of all charges being imposed; we need a standard statement so that people can evaluate one policy against another. Again, it is not clear from the document whether we shall get that.
An independent investment ombudsman is needed to whom complaints can be referred, so that people can be satisfied that their complaints are being investigated. There has been talk of an ombudsman, but the way that

it has been expressed could mean a multiplicity of ombudsmen. Investment businesses must be fully responsible for their salesmen, so that if there are persistent breaches of rules by salesman the company and the salesmen can be disciplined. However, what is envisaged is a simple licensing scheme for salesmen rather than a regulation under which the companies can be disciplined.
The regulations to be made under the Act are unknown and we do not know how they will operate. There is far too much uncertainty. Too little is being done to protect the small investor. There is also uncertainty about how to deal with the big people at the other end of the scale.
The Bill is like so much else that has come from the Government—a limited step. It is a step on the right road that should have been taken years ago, but it comes too late and it does not cover the real problem. The Bill is half-hearted and it is a wasted opportunity. We shall do our best to improve it in Committee.

Sir Anthony Grant: In a rather woolly speech the hon. Member for Great Grimsby (Mr. Mitchell) made one or two good points. His basic premise was wrong, but I share his desire to help the small investor and to ensure that there are strong powers in the Bill. However, when he mentioned honours and star wars, I concluded that he was doing what all of us sometimes must do, which is to respond to the requests of the Whips to keep the debate going from one to one on either side.
I declare all my interests on the register and especially my capacity as adviser to Barclays bank and Bowring insurance brokers. I am not and have never been a member of Lloyd's, which is far too risky for me.
I declare another interest. Many years ago I was a founder member of the wider share ownership movement with the late Maurice Macmillan. In those happier days we had the support of Labour Members, which was very valuable. I am pleased that recently the cause has obtained the support of the Chancellor of the Exchequer.
I formed the group with Maurice Macmillian because I believe in the spread of wealth and ownership throughout our community. To achieve such a spread, the small investor must be encouraged. However, he will not be so encouraged if he is not adequately protected against those who must bluntly be called crooks. He does not need to be protected against honest risk because that is what investment is all about, but he must be adequately protected against fraud. That must be the fundamental purpose behind the Bill, and it should be the policy of any Government.
I declare another interest. I am a past master of the Guild of Freeman of the City of London. I spent 20 years working professionally in the City of London, of which I am a liveryman. It is immensely sad that the standards that prevailed when I started working in the City have, alas, deteriorated. Far too many flash Harrys attracted to the City are long in aggression and cunning but short in morals. In the City the old saying used to be "My word is my bond." All too often now if a man says that his word is his bond, one would be well advised to insist on taking his bond.
The rewards of fraud are substantial and they make the great train robbery look like minor pick-pocketing. It is one thing to pass a law but it is quite another to enforce


it. It is vital that the fraud squad and those engaged in enforcing the law should have adequate resources. For far too long they have worked on the man and boy principle. They have worked valiantly and done their best, but the villains have flown too rapidly and easily.
I was pleased to see that in answer to a question on Monday 13 January from my hon. Friend the Member for Harrow, East (Mr. Dykes) the Attorney-General announced increases in resources and in the staff of the fraud squad. I do not know whether they will be adequate. Much more must be done to improve the quantity and quality of those who enforce the law if we are to achieve our objectives. Some fraud is now big business and is on an international scale.
If the Roskill report is implemented, it will be of great value. I believe in trial by jury and consider that it is fundamental to justice. However, there is a good case for considering the report's proposal that complex fraud cases should be heard by a judge and two assessors. The Opposition are justified in saying that many people are prosecuted—quite rightly—for small social security frauds. Those simple cases are easy for a jury to understand, but major fraud cases, where millions of pounds are involved, can be immensely complex and can be made even more complex.
When I practised in the City, the standard defence was to make the case as complicated as possible. Jurors are irritated in the first instance to be made jurors because it interferes with their lives. They are annoyed to discover that it is not a juicy murder or sex case that they can understand. They are angry to find that they have three or four weeks to sit through a monumentally complicated fraud case. If the case is made more complex, the jury will take the easy course and acquit the defendant. The Roskill proposals merit further consideration. I am sorry that they were treated so half-heartedly by the Opposition. When they have had a chance to digest the proposals fully, I hope that they will realise that the Roskill proposals could be a valuable implement to provide a deterrent to the worst fraudsters.
Happily, dishonesty is confined to a small minority, but that small minority does huge damage to the reputation of the City. We must be careful that any legislation is not a steam roller to squash the ants in the strawberry bed. The Government seek to enact the Bill before the big bang in the autumn, which is the revolution whereby brokers, jobbers, and banks will merge and there will be an invasion of foreigners. That is already taking place—notably by Americans with very large purses.
The intention is to enable the City to compete in an increasingly tough international market and to enable us to use the traditional expertise of the City institutions that contribute so much to the British economy. New regulation of new activities is necessary. We cannot have a free-for-all and no one would suggest that we should.
A Securities and Exchange Commission on American lines is sometimes suggested, but I believe that that would be undesirably rigid and would hamstring the City at a time when it needs the flexibility to compete internationally. It is significant that the chairman of the SEC in the United States is not wholly satisfied with his commission. I am not surprised. He is looking with envious eyes at what we are doing. The Government are right to reject that solution.
I do not believe that the Opposition's amendment would do anything to achieve the desired effect. The object is to achieve the right balance, and I believe that the Bill does that. The hon. Member for Great Grimsby should realise that the powers reserved to the Government are considerable should the self-regulation fail.
The big bang or City revolution poses a problem that the Bill does not solve. I wish to put that problem to my hon. and learned Friend who is to reply. It relates to conflicts of interest. I did not catch the remarks made by my right hon. and learned Friend the Secretary of State about the agency and whether it could lay down principles, but no doubt my hon. and learned Friend will clarify the point when he replies.
As one who took through the Lloyd's Bill in 1982, I find it ironic that the stock exchange, which strongly supported me, as did the House, in separating brokers from underwriting agencies to avoid conflict, has now gone the other way. It has merged brokers and jobbers. That has caused the problem. They are plainly forming the huge conglomerates which will be needed to compete internationally. I am involved with one of them. Banks, jobbers and brokers work together as a conglomerate to compete against big competitors abroad.
There is at law a broker-client relationship of trust. It is one of principal and agent between the broker and the client. However, the jobber at the other end of the corridor might be innocently and honestly making the market itself. There is a possibility that a conflict will arise. We are told that the so-called Chinese walls of the City will prevent any such difficulty. I venture to doubt that, because an aggrieved client may well sue. As I understand it, the Government say that if that happens the courts will resolve the problem and we shall have a body of case law and understand what it is all about.
How can the City wait three years in this competitive business while a possibly vexatious litigant pursues a claim which may well be rejected? We may have to wait even longer if, as someone has suggested, the Law Commission studies the problem of principal and agent. That is a genuine dilemma for those working on the new revolution and trying to make it work well for Britain. I hope that when he replies my hon. and learned Friend will give some reassurance to those people who are anxious about that issue.
A great deal of nonsense has recently been talked about Lloyd's. I repeat that I am not and never have been a member of Lloyd's, but I carried the Lloyd's Bill through the House in 1982. I was then well supported by the Labour Opposition. The Committee, which was most ably chaired by the hon. Member for Oldham, West (Mr. Meacher), scrutinised the Bill with the greatest care and approved it, as did the House, with a substantial majority.
The Bill, which was a private Bill, was scrutinised by the House for a record length of time. Opposition to the Bill came from my hon. Friends who thought that it was too tough and rigorous. The Lloyd's Bill, which was largely an enabling measure, was valuable and necessary to bring Lloyd's up to date—something which had not been done since 1871. Under that measure, Lloyd's publishes new regulations. It has done so almost every week. As far as I can discover, there has been no objection to the new regulations. Lloyd's has also used its new powers to pursue miscreants, all of whose misdeeds occurred before the passing of the 1982 Act.
I believe that the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) was right to castigate the scandalous goings on in Johnson Matthey Bankers. However, he has gone hopelessly adrift over Lloyd's. In so far as his allegations are true—and many of them are—they are old hat and have been or are being dealt with. The latest points that he has made would carry more conviction if he uttered them outside the House. While his campaign has done little to help British companies compete abroad, I am sure that we all rejoice that it has helped him in his battle for reselection, about which we are all delighted.
I wish to deal with the suggestion that Lloyd's should be brought within the scope of the Bill. It is probably impractical and certainly premature, but I do not take a rigid view about it. I respect what my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) said. I understood his argument, but he overlooked one rather important point. When the scandals were emerging and my Bill—I call it my Bill—was going through, every attempt was being made by our competitors overseas to knock Lloyd's and to say that it was a scandalous place which was not working and was out of date. When the Bill was passed and we could take action over those scandals, our competitors' criticism was largely muted and Lloyd's business continued happily overseas, to Britain's benefit.
If it is suggested that the 1982 Act and the regulations stemming from it are insufficient, or that Lloyd's was not using its powers adequately, that could have an adverse effect upon our competition overseas and would give the impression that we do not know what we are doing.
Having said all that, no one can suggest that everything is perfect. The right course to be taken, therefore, is the one taken by my right hon. and learned Friend—to set up an inquiry to investigate whether Lloyd's powers are inadequate and are not being handled properly. If that is so, amending action can be taken.
To bring Lloyd's within the Bill would do nothing. It would not give it any more powers or make them more effective than those it already has under the 1982 Act. More powers may be required—

Mr. John Butterfill: Does my hon. Friend agree that it would be illogical to bring Lloyd's into the scope of the Bill without bringing in the remainder of the general insurance market?

Sir Anthony Grant: That is right. That is why I said that it was certainly premature and probably impractical. I agree entirely with what my hon. Friend says.
The Government have adopted the right course. We should judge by uses, not abuses. The overwhelming majority in the City are honourable people contributing to our society and to the British economy. The overwhelming number of people in Lloyd's and the insurance market are honourable and honest, contributing vastly to Britain's invisibles and overseas earnings. Brokerage and insurance contribute well over £1 billion per annum to our invisibles. Lloyd's gives honest and honourable direct and indirect employment to about 83,000 people.
The Bill can be improved in Committee. All Bills can. The Bill is a brave and skilful attempt to steer a course between the rocks of excessive rigidity and the whirlpool of financial anarchy. It should be given a Second Reading as a preliminary to ensuring that London remains the world's financial centre.

Mr. D. N. Campbell-Savours: We shall have the opportunity to debate much of the Bill's detail in Committee. Those of us who are fortunate enough to be selected by the Committee of Selection look forward to those debates.
I should like to take up one thing that the hon. Member for Cambridgeshire, South-West (Sir A. Grant) said. He referred to the good old days when one's word was one's bond in the City. The old school tie in Threadneedle street is having to give way under the new arrangements to the stiletto in Shoe lane. Values are changing in the City. There will be a substantial change on 17 October when the big bang takes place and we see a completely new regime effectively taking over many city institutions.
I believe that the contribution of my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) to these debates in the past few months has been crucial. On the margin one is bound to be slightly inaccurate—that is the way of the world—but 99 per cent. of the arrows that he has fired since the beginning of his campaign have hit home.
The measure of how successful he has been in his campaign is seen in the antagonism shown by Conservative Members. Ministers, including the Chancellor of the Exchequer, and Back Benchers have repeatedly and systematically set out to attack him and undermine him personally. In the way he has persisted he is serving the public interest and in the end his efforts will be adequately rewarded by way of legislation, whether it is produced by this Government or by the next Labour Government. The demise of this Government will come with the discrediting of free market principles, particularly those being practised in the City.

Mr. Nelson: That is what the Opposition are about.

Mr. Campbell-Savours: The hon. Gentleman says that that is what we are about. It is the business of any hon. Member of this House to draw attention to deficiencies in that area, and if legislative change is required, then that is precisely what we are about. I am glad to see that the hon. Gentleman endorses our position. There is clear evidence that the recent spate of City scandals has clone considerable damage to the Government, and unless the Government act to deal with these matters of great public concern, more damage will be done. The Government are caught by a Catch 22. If the restrictions they introduce in the City are too fierce, business will be lost, but if the regime they introduce is too liberal, the Government will lose credibility.
In terms of debate that provides us with the ultimate irony. Modern capitalism, when revealed to the public in its raw, unbridled, unregulated, unrestrained and unattended state, is ugly. II is violent and repulsive to public opinion. That does not necessarily mean that I am in favour of planned economies or extreme economic principles. I believe in a mixed economy, but it has to be a mixed economy based on clear regulation and firm riles which cut out the excesses of those who wish to abuse the legal framework.
In whatever area one looks, the argument today is for intervention. This is non-intervention, and it is pleasing to know that during this debate some hon. Gentlemen from the Government side are courageous enough to stand up and say that they recognise the need for intervention. They


understand the need for compromise, and I hope when we go into Committee in a few weeks time we can forge some cross-party alliances with the single intention of strengthening the Bill in the areas of weakness outlined by my hon. Friends and contained in the speeches by hon. Members opposite.
The Bill certainly needs strengthening in its application to Lloyd's. That fact has been recognised by Mr. Stephen Merrett, the chairman of one of our largest underwriting groups. A recent newspaper report said:
Mr. Stephen Merrett, chairman of one of the largest underwriting groups in the market, has told names on his syndicates that Lloyd's disciplinary rules introduced following the 1982 Lloyd's Act 'have not had quite the effect that we would have liked.'
Mr. Merrett cited the delay in bringing members to account and publicising major investigations as one way in which the new rules are not working fully. He has also talked of 'the extraordinary levity of the sentences in view of the seriousness of the crimes of which people have been accused.'" He goes on to say:
Where persons have a responsibility for the unlimited liability of members of the society we believe it to be quite wrong for theft, fraud or misappropriation of one kind or another to be treated as if it were a matter of no great consequence and appropriate only for a temporary suspension.
Those are the words of a senior man in Lloyd's. They are not the words of a Labour Back Bencher, but of a man working daily in the market. He understands how the market works and he is clearly demanding far higher standards. He deserves the support of this House.
It may be that Mr. Merrett was one of those who sat through the proceedings of the Bill in 1982. I remember the night well. I sat in this very place next to my hon. Friend the Member for Oldham, West (Mr. Meacher). The Benches were packed on the Government side, but what was more remarkable was the crowd in the Gallery. I think it was about 11 o'clock at night and one could not move in the Gallery. A suited army of citizens from the City was there to pay regard to our performance and our proceedings, and they knew what was happening. I believe that many of the people in the Gallery that night knew that the House was being deceived. They knew that the Bill before us would not work and that in the end statutory regulation would be necessary. Perhaps the same gentlemen are here tonight to watch our debate. It may be that there are those among them who recognise the great deficiency that has been thrown up in the last few years.

Sir Anthony Grant: Will the hon. Gentleman give way?

Mr. Campbell-Savours: I will. I know that the hon. Gentleman was here that night.

Sir Anthony Grant: The hon. Gentleman will find that the greatest interest in the Gallery was shown by those who were anxious to see that the powers proposed in the Bill were going to be in the Bill and not defeated by my hon. Friends.

Mr. Deputy Speaker (Sir Paul Dean): Order. It is not in order to refer to the Gallery.

Mr. Campbell-Savours: I am sure I can refer to the Gallery "on that occasion" insofar as I am not referring to it tonight. I do not know who was in the Gallery but I know they were all gentlemen from the City and that they had come to watch our proceedings. They seemed enormously

pleased with the work done by my hon. Friend. I remember thinking to myself, "There is something wrong. It cannot be right that my hon. Friend is gaining all this support."

Mr. Hugh Dykes: Why don't you get on with it?

Mr. Campbell-Savours: Perhaps the hon. Gentleman wishes to intervene.
The Government response to arguments about Lloyd's has been to produce a rabbit out of a hat in the form of an independent inquiry. We are not fooled, because it seems that this decision to produce a rabbit out of a hat was taken only last week. An announcement was made last Friday and built into the statement, as my hon. Friend has said, was a quote from the Secretary of State which in itself set out to undermine the inquiry. The quote said:
It did not mean that Government felt Lloyd's arrangements for self-regulation were defective.
The Government set up an inquiry and in doing so said that they did not believe the rules were defective. To some extent that could set the terms of reference for the inquiry. Perhaps, within the curious logic practised by the Secretary of State or the Under-Secretary, hon. Members can find some other way of interpreting that statement.

Mr. Butterfill: Does the hon. Gentleman not agree that it would be even more of a rabbit out of a hat if we were to tag Lloyd's on to this Bill without thinking how it would relate to the Bill?

Mr. Campbell-Savours: As I understand it, we could well have introduced legislation with this Bill to deal with Lloyd's. Nothing prevents us from doing that and it would have been in order, so I cannot see the point made by the hon. Gentleman. He may believe that it would require a different approach, but we were in a position to legislate during the course of the Bill to deal with the problem of Lloyd's. I am sure the hon. Gentleman accepts that. The Government are refusing to place on record the fact that something is wrong. They have spent the last 12 months denying the fact that there has been inexcusable activity in various parts of the City. The Government should ask some of their hon. Friends who lost money in Lloyd's. Those hon. Members have only recently been surfacing.
Salaries in the City are another matter of concern. The major expansion in the City is fuelling a pay explosion. Mr. Nigel Halsem, the managing director of the Michael Page Partnership, a City employment agency, says that salaries have doubled in two years in the Eurobond market. He says that it is commonplace for salaries of £50,000 basic and perhaps a further £150,000 commission to be paid. Some people may say, "The best of luck to those who are capable of earning such salaries when they are young men." What about the people in the country who say, "Where is the fairness in those people earning such high salaries? Is it reasonable that they can secure such high income levels through high commissions?"
Recently, a 31-year-old Eurobond dealer moved from a British to an American bank in the City for a basic salary of £62,000 a year with a guaranteed bonus of £100,000 after two years and a possible bonus of £300,000 if he performs well. A 28-year-old went to an American bank for a basic salary of £50,000 a year and a slice of 20 per cent. of the profits that he makes for the firm—guaranteed £250,000 a year. In a typical deal, a 28-year-old analyst earning £35,000 with one firm of City


stockbrokers was lured to another firm under American control for a pay package of £130,000, including incentive bonuses. Those are almost football transfer fees.

Mr. Butterfill: Or SOGAT.

Mr. Campbell-Savours: Will 27 October and the big bang deal with this? Estimates suggest that large overseas operators are pumping hundreds of millions of pounds into the City to buy up talent. Will salaries fall when the big bang comes? How will the market respond? Will the operators stop this practice, which is referred to as "churning"? Will they start involving themselves in unnecessary transactions simply to boost their incomes on the back of commissions? Some people do not like pay cuts. How does the City intend making up the salaries of those with a high salary expectation?
The role of the banks is another matter of concern. One of the more positive aspects of the attack by the former Secretary of State for Trade and Industry on restrictive practices in the City was the ending of fixed commissions. Since then, there has been a steady movement of large international financial institutions, including banks, into the City. Will the banks cross-subsidise from orthodox banking to dealings in the City? We know that the fiercest of competition will be in gilts. At the moment, two jobbers have 80 per cent. of the business—Akroyd and Smithers, owned by the bankers S.G. Warburg, and Wedd Durlacher Mordaunt and Co., partly owned by Barclays, another bank. They rely on fixed commissions. Next year, 29 market makers take over. One United States firm has said that it will not make money for at least seven years. I am told that some banks will be in on that market, but how will they pay for it? There seems to be only one possible way to pay for it—to cross-subsidise. Who pays?

Mr. Austin Mitchell: I do, with my overdraft.

Mr. Campbell-Savours: My hon. Friend is absolutely right.

Mr. John Browne: What about the chairman?

Mr. Campbell-Savours: The hon. Member for Winchester, (Mr. Browne) knows who will pay. I think that he is a consultant to one of the clearing banks. I am sure that he would want to explain to the House how it intends funding the losses expected in the gilts market. Some of his colleagues seem to agree partly with my suggestion that there might be a high level of cross-subsidy. Unless the banks cross-subsidise, foreign institutions will move into the market to take it over. It is predicted that within a few years gilts will be under the control of foreign institutions. Perhaps some hon. Members would like to intervene to tell me that I am wrong and that that will not happen.

Mr. Dykes: No.

Mr. Campbell-Savours: The hon. Member for Harrow (Mr. Dykes) does not want to be bothered.

Mr. Austin Mitchell: My hon. Friend is right. All the viable industries and firms that have been put out of production and closed down by the banks will at least have the satisfaction of knowing that their money will subsidise the banks in the gilts market.

Mr. Campbell-Savours: What can I add to my hon. Friend's wisdom? A Labour Government will not want

foreign control of that market. We will want United Kingdom control. We may well have to act to restore control because of the conditions that have been created.
The role of auditors is of concern. I agree whole-heartedly with the hon. Member for Yeovil (Mr. Ashdown) in this respect. He referred to his reservations and to the recent Green Paper which deals with the new responsibilities of auditors. The Green Paper states that, in the spirit of deregulation, confidentiality does not prevent disclosure to an appropriate authority where public interest is involved. This would include cases of suspected fraud and any breach of a statutory duty liable to cause significant harm to a third party. The Secretary of State used the word "expect"—so this is only an expectation of the auditors. The right hon. and learned Gentleman said that the Government might introduce amendments to deal with this aspect. I hope that, in doing so, he accepts that we should place statutory responsibility on the auditors to report where they find fraud. Under this method of self-regulation, the system does not work.
Auditors that operate under the Companies Acts are subject to two types of control—Companies Act legislation and professional rules of conduct laid down by the institute of which they must be a member. The Companies Act 1985 contains two relevant sections. Section 237 states the circumstances in which an auditor must qualify his report on the accounts. This includes cases where proper account of records has not been kept. Section 393 strengthens the powers of the auditor by making a criminal offence of anything that
conveys or purports to convey any information or explanation which the auditors require
which is
misleading, false or deceptive in a material particular.
The guidelines issued by the accountancy profession are more vague. The guidelines issued by the Institute of Chartered Accountants in guidance note 1306 on the disclosure of defaults or unlawful acts states:
It is an implied term of a member's contract with his client that a member will not, as a general rule, disclose to other persons information about his client's affairs acquired during and as a result of their professional relationship
during an audit
against his client's wishes. Therefore, where a member becomes aware that a client has committed a default or unlawful act, the member should in principle keep the matter between himself and his client by virtue of the contract. A member who acquires knowledge of the commission of a criminal offence (other than treason), or a default which is a civil wrong, is under no legal obligation to disclose what he knows to a proper authority. There are, however, circumstances in which, in spite of the contractual position, a member may be obliged to disclose information to the authorities or may be free to do so if he wishes".
Then it sets out the circumstances:
(a) the auditor is obliged to disclose information by a Court; (b) or where the client has authorised disclosure; or (c) where there is a public duty to disclose information.
The code of practice says:
Council therefore recommends that members, even though free to do so, should not disclose past or intended crimes or civil wrongs (except treason) which they are legally obliged to disclose unless they feel that the damage to the public likely to arise from the non-disclosure is of a very serious nature.
The truth is that there are no real obligations. Unless this is reinforced in the Bill, once again these people will escape. In my view, self-regulation in this particular area is out.
Is the Bill strong enough? Sir Kenneth Berrill is unhappy and has made his discontent public. He says that


he "wants stronger powers to discipline the SROs". He wants the SIB rules to have precedence over SRO rules. What we want is a statutory body with teeth, real power to police the City, something akin to what is available in America, but different.
There has been so much discussion tonight about the difference between what we want and what is available that I can only compare what the Government want to set up with Securicor and what Labour Members want with the Metropolitan police. Perhaps that is the best distinction that one can draw. There is a distinction and it is an important one. Securicor is privately funded. It has powers, the powers available to any citizen. It even has the power of arrest, the citizen's power of arrest. The Metropolitan police force is a statutory authority. In so far as the Metropolitan police would appear to be an effective policer of London, I should have thought that a similar body operating in the City would be seen to be an effective policer of City institutions.
The statutory body would define rules and the SROs would comply. Default would lead to trouble. At the moment we do not even know what the rules are. I hope that we shall learn much in Committee about the intention of the Government in that particular regard.

Several hon. Members: rose—

Mr. Deputy Speaker: Order. May I repeat Mr. Speaker's appeal for brevity? Many hon. Members still wish to speak and time is getting short.

Mr. Anthony Nelson: It is always a pleasure to follow the hon. Member for Workington (Mr. Campbell-Savours) who traditionally speaks with colour and conviction and today comprehensively. If he will permit me to say so, and stripping away some of what might be regarded as prejudice and hyperbole, he has raised issues with which I can agree—in particular, the anxiety to ensure that this is good legislation and that we stiffen it up and improve it, where necessary, in Committee. I can assure him that if I am able to play any part in that, I will do so.
I welcome the Bill as a significant improvement in investor protection and a radical and much-needed change in the regulation of the financial services industry. The financial services industry now accounts for 7 per cent. of our national income, employs 2 million people and generates over £6 billion in foreign exchange. The reputation, integrity and attraction of the industry to investors at home and abroad have been ensured in the past principally by three forms of control—the law of convention, common law and statute law, in that order.
The law of convention provided, through self-regulation, an acceptance of personal obligation in exchange for privileged membership of exchanges such as, for example, the stock market through membership of the Stock Exchange or merchant banking through membership of the acceptance houses committee. That led to the old adage, "My word is my bond." That motto characterised the City for many years and served its reputation well.
Common law was perhaps less important than that basic self-regulating convention. It provided a recourse to the

courts in civil disputes, for example, on matters of agency or contract law, and the recognition of the limits of good practice as defined by precedent and case judgments.
Historically, it can be said that statute law was the last and least important of those forms of control which governed the City, imposing, as it did, legislative restrictions and obligations—examples are the Companies Acts and, in this instance, the Prevention of Fraud (Investments) Act 1958—on the activities of the multiplicity of institutions in the City.
Since the development of the City under this system of convention and of common and statute law over 300 years, rapid and major changes which have taken place in recent years and months have rendered such regulation inadequate. First, there has been a massive expansion in the number of investors, the medium of investment and the practitioners in the financial services industry.
Secondly, there have been major changes in technology which have led to the more rapid transfer of funds, greater flexibility in the range of investment instruments now available and, indeed, the size of the markets which are accessible.
Thirdly, the internationalisation of the industry and the arrival of foreign companies, many with enormous resources and different standards of practice, have also changed the commercial environment substantially.
Last, and by no means least, the restructuring of the financial services industry and the merging of different activities into financial conglomerates, heralded by the abandonment of stock market minimum commissions and rules on outside shareholdings in stockbroking firms, have made the process of change very substantial.
All these changes have left the investor more vulnerable to malpractice and fraud, created apprehension about future standards of conduct and conflicts of interest, and undermined the old adage, "My word is my bond" to the extent, sadly, that the new motto ought to be, "My word is my flexible and revocable instrument", with the result that statute law has become a more important basis of regulation than the convention of voluntary good behaviour or than common law which has thrown up some conflicting and inadequate judgments in recent years.
For those reasons, I congratulate my right hon. and hon. Friends and predecessors on their efforts to strike the right balance in this Bill and the presentation of it between freedom and fairness, and indeed on consulting so widely among interested groups before presenting these provisions.
Turning to the contents of the Bill, I welcome, in particular, the decision to establish one board rather than two or more for the supervision of self-regulating organisations. The decision to go for the "Snow White and seven dwarfs" regulatory system is a challenging one and will obviously have some teething troubles, but I believe it to be the right decision. My hon. Friends will know that some of us have been pressing for it for years. I am very pleased that this Government have been responsive to the views expressed by Opposition Members and by many on the Government Benches in successive debates on the Gower report. Indeed, in my own submission to the Gower committee, it was my preferred solution, which at the time was felt by the Government and by Professor Gower to be unworkable; but opinion is gradually moving much more in that direction and I welcome it. I welcome, too, the provisions to make it a criminal offence to trade without authorisation or to make false or misleading statements.
This is the occasion to point out, however, those areas where one feels that improvements can be made or where one has some misgivings about the tenor and content of the Bill. I would have preferred to see the SIB or the delegated authority given statutory recognition, authority and objectives rather than the so-called "flexible" structure of enabling the Secretary of State to transfer his functions to a designated agency. Opposition Members make a valid point when they say that such a statutorily recognised authority would be independent, free from sudden discharge, totally responsible for the organisation of its market and more overtly, objectively, publicly accountable for the control and regulation of the many activities within its boundaries. The Bill goes a long way towards establishing such a designated agency, but I would not have minded, and would still like to see in more detailed areas, more statutory definition and authority being given to the body.
Much of the new structuring and many important detailed rules are to be introduced by order after the legislation is enacted. A more general point, which I hope will find accord with my hon. Friends, is that there is far too much legislation by order nowadays. It is preferable to consolidate as much as possible into primary legislation. Examples of that can he found throughout the Bill. I understand the complexity and range of its provisions, but it is in the detail of matters such as disclosure requirements and cold calling limitations that we can judge how authoritative the Bill will be, and the extent to which it can genuinely protect the interests of investors.
In the past, I have expressed strong reservations about the composition of supervisory boards and self-regulating organisations which historically have been, and remain, too practitioner—oriented and cosy. There have been welcome improvements in increasing the so-called lay membership of such authorities, but all too often those lay members are on the periphery of the practitioners, and do not genuinely represent the interests of the consumer and the investor, as they should.
The principal function of both the designated agency and the SROs should not be to provide an easy working machine which is not subjected to criticism. Their principal objective is to protect investors. Their face must always be pointed towards the investor, and they must apply that criterion to every decision. They must ask whether the decision protects the investor. That is their job. Their principal function is not to co-ordinate a nice smooth market and to keep everyone happy, but to represent the interests of the profusion of people who come to the market.
The provisions in schedules 5 and 2, which relate to the composition of the governing bodies of the designated agency and the SROs, are imprecise and place insufficient emphasis on the representation of investor or public interests through lay membership. Also, schedule 5 provides for the appointment or removal of the designated agency chairman by the Secretary of State and the Governor of the Bank of England acting jointly, thereby giving the Governor a veto and an undue influence over the investment market. I raised that question with my right hon. and learned Friend the Secretary of State at the beginning of the debate, and we should return to it in Committee.
Clause 151, which enables the Secretary of State in the national interest to disqualify from carrying on financial business in the United Kingdom anyone from a country

which does not afford us favourable access to its financial markets, should find no place in the Bill. The provision is irrelevant to the protection of investors, and flies in the face of our long-established tradition of open access to markets. We should consider seriously that aspect of the Bill, although it may be peripheral to some of the Bill's objectives.
I shall now deal with the question whether Lloyd's should be in or out. Initially, I was receptive to arguments for drawing Lloyd's within the ambit of the Bill, but after consideration I have concluded that that would be an error of judgment. First, the principal business of Lloyd's is different from that engaged in by those involved in the investment markets. Just as commercial banking And non-life insurance are outside the scope of the Bill, so should Lloyd's be. Secondly, there is a distinction between the types of people and the objectives of those who become underwriters at Lloyd's and of those who invest in stocks and shares. The former place their assets at risk, although retaining direct ownership of them, in order to engage in the insurance business as principals. The latter convert their assets into investments in the businesses of others. There is a significant difference between the characteristics of the sole trader and the passive investor. They should be afforded the regime of protection.
The Government have announced an inquiry into the regulation of Lloyd's, and we should await the outcome before hastily absorbing an essentially different industry into the ambit of the Bill. Nevertheless, I have a responsibility to point to my preferred alternative. Unlike some, I am not satisfied with the way in which Lloyd's is going even now, although I recognise that substantial changes have been instituted since 1982. My preference would be for a public, not a private, Bill, if we could overcome the legislative problems of hybridity, which would tighten the supervision of Lloyd's and provide, among other things, for the appointment of a chief executive with terms of reference. It should provide less self-interest on Lloyd's ruling body, an end to "baby" or preferred syndicates, legal responsibilities for Lloyd's policy signing office, and more disclosure on such practices as reinsurance to close, and the credentials of offshore rollover funds.
I feel sorry for the affected Peter Cameron-Webb names who, as a result of fraud, maladministration, inadequate supervision and straightforward bad risk-taking, have lost about £168 million over the years. They and other underwriters are entitled to higher standards of probity and supervision, but they are not entitled to evade their responsibility in the final analysis to pay the calls on them. I have heard that they are selling up and moving abroad before further calls are made on their assets. That would do immense harm to the reputation of Lloyd's, whose underwriters have historically been prepared to pay claims promptly, and it would be no less evasive and unlawful than they accuse Mr. Cameron-Webb of being.
Greater protection for investors is needed urgently. The new regime provided for in the Bill must cope with the aftermath of the big bang, which will be bloody with a bear market following this bull market as surely as night follows day, and with marketing techniques and investment instruments the like of which we have never seen before.
It is vital for the interests of investors and the financial services industry generally that we enact good legislation which will stand the test of time, and command the widest


respect. The Bill may not go quite as far as I should like it to go, but it is most welcome as far as it goes, and it will enjoy my support tonight.

Mr. Gerald Bermingham: Most hon. Members who have spoken have dealt with Lloyd's and the City, and little has been said about the guy at the end of the chain who will pay the bill. He is the fellow who pays insurance commissions and is talked into a policy which he does not particularly want because he is buying a house and is sold an endowment policy with it. He is the guy who pays the interest on his overdraft because the banks need to compensate their profits. The Bill should protect such people.
I accept that Second Reading is not the time to take the Bill apart clause by clause. I welcomed the Gower report and hoped for a Bill that would go to the heart of the problem, and look after the chap at the end of the chain, that is the small investor, or the man who pays his monthly premium on his endowment policy or pension fund. I hoped that such people would be looked after, but I fear that the Bill will not do that.
I hope that I shall be fortunate enough to serve in Committee. Perhaps some of the Committee's time could be spent on asking those questions. The chap who pays the bill may be a name at Lloyd's who has been defrauded, a small shareholder who has been sold a pup in a bucket shop, or an old lady who puts her savings on the line and finds her investment worthless. Such people should be protected. It is all very well to say, "Lloyd's is out of this. It is a separate entity." A moment ago the hon. Member for Chichester (Mr. Nelson) spoke of some members who are thinking of going abroad to avoid further frauds. That people are driven from this country by the fraud of others is an absolute disgrace and a sad reflection upon the institution of which those who committed fraud were said to be proud members.
As a barrister I am not at all satisfied with the running of Lloyd's. I doubt whether, if tested, Lloyd's code of conduct could be shown to be the same as the code of conduct that we expect from the man in the professional office, the man serving behind a shop counter. There are still things going on and things that are talked about which are smelly and fishy. One hears rumours as one walks the streets of the City and talks to the people involved in the business world about what is still being done, about money that is still being shifted abroad, about how there is a new wheeze whereby premiums can now be moved this way or that or reallocated.
While all this continues, the reputation of Lloyd's continues to sink and so does the reputation of the City. There comes a time when one has to end amateurism and have a little bit more professionalism. This is urgent because, as has been said so often tonight, in October this year we have the big bang. This is the arrangement whereby the distinction between the jobber and the broker is to go. This will save everybody money on commissions. The end result has been a rat race of job-swapping in the City, escalating salaries and golden handshakes, for the likes of which many a man in the coal or steel industry would give their right arm, ear or eye.
At the end of the day who will pay? It will be the likes of the small investor because the services and commissions

will not be the same. The other effect of the big bang will be the invasion of the overseas banks and the overseas merchant houses. The City will never be the same again. If we change the City but still want it to be the financial market centre of the world we must regulate and order that market so that it equals if nothing else, the rest of the world. We must cut out the crook and the spiv. They should have no place within the centre. We must make sure that when somebody acts as an adviser or as a broker they act by a set of rules which conform to the criminal law. Anyone who makes a sly or fast buck, who seeks to cheat or to deceive must pay the full penalty of the law, and quickly.
In clause 147 there is one superb subsection to which I shall refer, and if I am lucky to be on the Committee I shall go back to it in much greater detail. Subsection (9) reads:
Nothing in this section shall require a person carrying on the business of banking to disclose any information or produce any document relating to the affairs of a customer unless—
(a) the customer is a person who the inspectors have reason to believe may be able to give information concerning a suspected contravention;
This is fine until one looks at subsection (2), which states:
The appointment under this section of an inspector may limit the period during which he is to continue his investigation or to confine it to particular matters.
In other words, we appoint an inspector to investigate insider dealings—we have been so brilliant in tracking down the people in insider dealings that in the last two years we have had four or five prosecutions. If one listens in the coffee shops of London one will hear whisper after whisper about that company and this company. We all know that it is going on but we have done nothing to track down the people.
According to clause 147, the inspector may go in for only a limited period as may be deemed advisable, and the banks are limited as to what they need give away. Subsection (9)(b) states:
the Secretary of State is satisfied that the disclosure or production is necessary for the purposes of the investigation.
I ask you. The Secretary of State has to be satisfied. We are talking about the way dishonest people make considerable sums of money at the expense of other investors—indeed, at the expense of the investment company itself within which the insider dealing is taking place. This is just one example of one clause and one subsection of this Bill which demonstrates how much is needed to be done by way of amendment if we are to create a set of investment protection rules and regulations which in some way might give the investor proper protection.
I want to see the City as the financial capital of the world but we shall only do so if we have a City that is clean and where there are no suspicions of fraud, of people making the quick buck, easy money. We shall achieve this only if we have a set of regulations that are equivalent to those in the rest of the world and of which we can be proud. We shall have this only if the supervising bodies—I agree with much of what the hon. Member for Chichester said—have teeth that can bite fast and deep. We must be prepared to toss out the rotten apples from the barrel. We must have a proper policing force, perhaps police officers in our fraud squads who are sufficiently trained to bring prosecutions speedily. The courts of the land must impose penalties that deter.
Until we have all these things we shall not have protection for the investor. This Bill is a little step on the way. A great deal needs to be done. It has to be done


carefully and with courage. If the prejudices of yesteryear are forgotten and everybody on those committees works with a clean City in mind we may do something that is worth while.

Sir Brandon Rhys Williams: Earlier this afternoon it was declared that Conservative Members who sought to take part in this debate all had vested interests. I should like to say that I am not a director of any public company. I do not own any shares in any public company. I am not a partner in any business. I am not a member of Lloyd's. I am not a trustee of any profit-making property. I have no consultaciesor retainers, and I am not a member of a trade union.
Hon. Members may say that all that means that I do not know much about business, and they could well be right. However, I did serve for 20 years in heavy industry and in consultancy before being elected to the House. I have sufficient interest in business to have brought forward specific suggestions to amend company law in every Session of Parliament since 1969. I did this with the support of well-informed Members on both sides on the House.
I consider that the Bill has a number of deficiencies. That is due to the Department's preoccupation with serious fraud and gross mismanagement rather than the milder business diseases which are unfortunately all too common in Britain. Insufficient attention has been given to the way in which fraud and other disasters can overtake a business in a climate of general inefficiency, management sloppiness, malpractice, corner-cutting and business practices which may be within the law but are generally accepted as contrary to the ethics of business people. That is the ground in which fraud can grow, and unfortunately all too often does.
In recent months I moved into a house which had been standing empty for a number of years. As soon as we turned on the central heating, the most hideous mushrooms appeared out of previously innocent-looking timber and plaster. It was, of course, dry rot. The experts told me that I could get rid of the symptoms as and when they occurred, but that the real solution was to have a firm, sound, dry and well-ventilated structure. I think that the Bill is rather like people who are trying to pick off the mushrooms by using chemical methods in this spot and that without attending to the background in which business is carried on in Britain.
The Bill defines investment business in such a way as to include managing investments and advising on the exercise of rights conferred by the ownership of assets. It appears to put most emphasis on the time of the purchase of the asset—possibly the disposal of investments to some extent—rather than on the advice that should be given to investors on constructive, continuing and responsible ownership of assets.
Are the owners of assets to be regarded and protected as absentee landlords once they have acquired their assets, or do we hold to the concept that investors should be component elements in a well balanced mechanism, including suppliers, customers, workers, managers, supervisors and proprietors, all working together in a fruitful relationship? I am sure that that is a more healthy aim, but it is not the Bill's aim.
I have often said that the weakness of the British economy is attributable in quite large part to the fact that

so much of our enormously voluminous company law is obsolete. The great 1948 Act was obsolete by the lime that it was enacted, and much of what we have done since has added to the complexity rather than attend to the fundamentals of business practice. We ought to consider company law as a whole. The same goes for partnership law. It is a great pity that the Department is not offering constructive thought on the background against which business is conducted.
I welcome the Bill. I am sure that it contains much that is necessary; nevertheless, it seems to be yet another major Bill regulating business which constitutes a rather wasted opportunity and perhaps a rather heavy drain on parliamentary time. But I am sure that it should go through, and I do not believe that we should clutter this already complex Bill by adding provisions relating to Lloyd's. I am not a member of Lloyd's and I do not know a great deal about insurance, but if existing legislation concerning Lloyd's is not working, another Bill aimed specifically at that target or at insurance generally would be better.
We should be making new provisions to strengthen existing supervisory elements governing how investors' assets are used. I am thinking, of course, of auditors and directors, especially non-executive directors, who are often ineffectual components in the business structure. About 100 years ago it was obvious that, as business was becoming more complex, the owners of assets needed advice from supervisory elements who would help to ensure that their businesses were properly managed. In Germany, there gradually evolved the concept of a supervisory board, whereas Britain experienced important battles which led to the imposition of the compulsory audit.
I am not suggesting that compulsory audit is wrong, but it has not stood us in good stead, because the practices and responsibilities of auditors have not been sufficiently sharply defined by Parliament. We have a large body of highly responsible professional people, but we are not making them as effective as they should be in preventing conditions which ultimately provide the opportunity for fraud.
Auditors and non-executive directors could be ruled by company law that could make them far more effective. All we need is quite minor changes in statutory procedures governing how companies are run. I shall not try to define them now. I have spoken on this subject often, and I hope to introduce a Bill in two or three weeks in which I shall set out several specific recommendations for minor changes which I believe could have big results.
That approach, which the Department has neglected for a long time, is just as important as setting up new agencies and could be just as fruitful as increasing the Department's staff.

Mr. John Whitfield: I welcome the opportunity to speak on this important Bill. As Lord Roskill's committee so aptly said:
If the Government cherishes"—
I understand that they do—
the vision of an equity-earning democracy, with greater encouragement for ordinary families to invest their savings in shares, it faces an inescapable duty to ensure that financial markets are honestly managed and that transgressors are swiftly and effectively discovered, convicted and punished.


In addition to suggesting changes in the law relating to the conduct of fraud trials—those recommended by Lord Roskill's committee are many, complex and far-reaching—Lord Roskill rightly says that there must be changes in practice and attitudes which will make demands on everybody involved in investment business. The Bill is concerned with such people's practices and attitudes.
The difficulties of bringing fraudsters to trial and securing their conviction are manifold, as is well known. I whole-heartedly welcome the report's recommendations in that regard and was pleased to hear today that parliamentary time will be found in the next Session to enable the majority of those recommendations to be implemented. However, improvement of criminal law procedures is not enough. We must ensure that our financial markets are managed honestly and that transgressors are brought to court, convicted and punished.
Self-regulation is a fine concept, but if the present system worked well, we should not be debating the Bill. Irrespective of whether one considers the Lloyd's insurance market, the stock exchange or my self-regulatory organisation, the Law Society—that is the only interest that I have to declare—the records show that, although each august establishment appears able to deal with the most blatant excesses of its ordinary members, it is unable or unwilling to cope when it comes to the atrocities, if that is not too strong a word—it often is not—committed by members of its hierarchy.
I need mention only three names to prove my case—Sir Peter Green, about whom we have heard a great deal today, Kleinwort Benson in the context of the British Telecom share allocation and the solicitor Mr. Glanville Davies. In each case, the regulatory authority concerned seemed unwilling to deal with serious examples of financial irregularity or abuse of a privileged position. In each case, the people concerned were on what has been aptly termed the inside track—they were members of the top table of the organisation.
Even in less important but equally serious cases when illegal or unlawful profits have been made at other people's expense—for example, the baby syndicates at Lloyd's, insider dealings that proliferate on the floor of the stock exchange, the abuse of buying shares for unnamed accounts, the facilities that have been offered to known rogues such as Mr. Jim Raper to plunder the assets of public companies for their own personal benefit and the share tipster who tips his own shares, the regulatory authorities, when they exist, have more often than not been unable or unwilling to prevent the commission of the offence or to provide a remedy.
Too often recently, we have had to listen to that weak and wet response to criticism which runs, "We have done all that we can. It is now up to the Director of Public Prosecutions or the inspectors of the Department of Trade and Industry. It is not our fault if they do not do anything." The chairmen of the stock exchange and of the council at Lloyd's are especially guilty of such buck-passing.
There is an enormous gulf to be filled between the present system of self-regulation and the criminal law. I understand that the Bill tries to fill that gap by introducing a system of statutory backing for self-regulation, which will preside over our fast-changing financial markets.
In this connection I welcome the new statutory provisions and powers to make rules for the conduct of investment business contained in chapter V of the Bill. Particularly I welcome the surely long overdue provisions in clauses 49 and 50, which will require those conducting an investment business to take out indemnities against claims and to hold clients' moneys in accounts separate from those containing their own moneys. I welcome clause 54, which provides for the disqualification of certain prescribed unfit and improper individuals; clause 56, which enables restitution orders to be obtained against those who have contravened the provisions of the Bill; and clause 57, which provides a new civil remedy for anyone who has suffered loss as a result of any breach of the rules.
I also warmly welcome the powers of intervention vested in the Secretary of State pursuant to chapter VI, which will enable him or the agent he appoints to prohibit an authorised person from entering into particular transactions or from disposing or dealing with any of his assets and give the Secretary of State power to sequestrate those assets. All these very necessary powers should be exercisable in my view in relation to any authorised person when it appears to the Secretary of State that they are required for the protection of investors—which is what the Bill is surely all about—or that the authorised person is not fit to carry on an investment business or has contravened the provisions of the Bill or furnished the Secretary of State with false or misleading information. I am therefore surprised and disappointed that, with one isolated exception, none of these very necessary powers of intervention seems to me to apply to any authorised person who is a member of a self-regulatory organisation or a professional body.
Subject of course to what my hon. and learned Friend has to say on this subject, it seems to me from reading the Bill that the vast majority of authorised persons will be safe from the Secretary of State's powers of intervention simply because they are members of their SROs. The Bill seems to have teeth, but the teeth will hardly ever be used.
It seems to me that this is the weak point, the Achilles heel of the Bill. The Secretary of State in my submission must retain for himself the powers to intervene in the affairs of the members of an SRO, because otherwise the public suspicion will remain, in spite of the new rules and system of supervision which the SIB will exercise, that the SROs exist to protect the best interests of their members, particularly their more influential members. This is the image which the council of Lloyd's, the stock exchange and even the Law Society have in the minds of members of the lay public who have had cause for complaint against many of the members of those organisations.
I hope that, in Committee, the Government can be persuaded to remove subsection (4) of clause 59 which provides that exemption. It is simply not enough to rely upon the Secretary of State's power to revoke a recognition order under clause 11. It is a power which he will be extremely reluctant to use, and the SROs will know that to be the case. One cannot imagine, for example, the authorisation as an SRO of the stock exchange itself ever being revoked.
What of Lloyd's itself? I will not detain the House long on this subject, because the point has been well covered by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) and my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant). I think that the Secretary of State has headed off the mounting


campaign to include Lloyd's within the ambit of the Bill by announcing last week the inquiry into whether that market is really protecting its members against the massive frauds which have occurred in the past and which many suspect are still taking place. In the light of the coming departure from the council of Lloyd's of the Government-imposed watchdog, Mr. Davison, this was the least the Government could have done. Hon. Members are of course aware that Lloyd's has its own piece of legislation, the Lloyd's Act 1982, but I fear that, even if one tenth of the allegations made in this House from time to time by the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) are true, the system of self-regulation set up by that Act is not working very well. Let us pay heed to that experience now and so be especially vigilant in dealing with the financial services market in the Bill.
There are already—without waiting for the results of the inquiry which has been set up—grounds at the very least for having severe reservations about the working of self-regulation at Lloyd's. We should not and must not discount that knowledge in our consideration of the Bill. Accordingly, we should ensure that, without exception, all those involved in investment business be subject to the powers of intervention.
The Government have rightly obtained a reputation as the champion of law and order. Bearing this fact in mind, let none of us on this side of the House forget, as Sir Kenneth Ben-ill himself has already pointed out, that to those of our constituents who for modest rewards actually make things there is something obscene about those in the City who, not content with just making a good living, as they do, through sheer greed and worse break the rules in order to make illegal and unlawful profits at the expense of the rest of us. They are a small minority, but they have to be dealt with.
Let us on this side of the House be seen to be imposing law, order and an effective system of regulation on such people and not shrink from setting up procedures which will enable the Secretary of State to deprive those who break the rules of their livelihoods as soon as those transgressions are discovered, while leaving those same people to face any criminal charges at a later date.

Mr. Robert McCrindle: The House will be relieved to know that, almost alone among contributors to the debate, I propose to say virtually nothing about Lloyd's, other than to suggest that, while the day may well come when the Lloyd's Act 1982 proves insufficient, I believe those hon. Members who suggest that now is the time are anticipating a course of events that has not yet been able to run its full course. I have no doubt that we will come back to the consideration of Lloyd's, but I regret that in the course of the debate so much attention has been paid to a matter which is not included in the Bill.
Living, as we do, in a period when the consumer's interest is paramount, it is perhaps surprising that we have not thought fit to update the legislative protection in this respect until now. I suppose it is fair to say that one or two scandals which affected relatively few people but received much publicity acted as the trigger. Following the rightly praised report of Professor Gower and the stock exchange agreement, to which reference has been made, it became clear that something approaching a revolution in the provision of financial services was on the horizon. Thus, the combination of isolated but serious scandals, a major

change in the City's activities and the era of consumer protection has led to the requirement for legislative change, the manifestation of which is before us in the shape of the Bill.
The Bill enshrines the principles of self-regulation by those offering financial services. I know that many disagree with that approach. Many feel certain that something akin to the United States Securities and Exchange Commission, with central Government involvement, would be preferable. I have to concede that even in the City there are misgivings. Many are convinced that the approach embodied in the Bill simply will not work and that tougher central Government control will have to ensue. I do not agree. In fact, I believe that is an excessively gloomy view and a rather unfair anticipation of the considerable movement represented by the Bill.
I believe that it is appropriate to give those in financial services the challenge to deal properly with the public. The vast majority of providers of financial services are honest people. It is regrettable that so much concentration is upon those who are not and who are clearly very much in the minority. I believe that many people—honest traders—in financial services want to provide a good and straightforward service. To encase such people in the straitjacket of bureaucracy, which I think could be well represented by the Securities and Exchange Commission approach, would be unacceptable, particularly to the small traders who abound in some of the areas under discussion within the ambit of the Bill.
If self-regulation is right, and if the Bill deserves a Second Reading—as it does—does that mean that there is no scope for improvement? On the contrary, there are wide gaps and omissions, most of which are for discussion in Committee. At the moment, all I need say is that although I understand the need for the Securities and Investments Board, I am concerned that so many of the rules that will underpin the legislation are to be left to a body that is effectively outside parliamentary control. If we cannot change that dramatically in Committee, we may feel that more positive guidance to the SIB is desirable.
I instance the licensing of an insurance salesman. There will be different opinions among hon. Members about whether or not that is a good thing, but it may not be wholly desirable to leave the decision on such important matters entirely to the SIB.
Further consideration should be given to whether we could at least lift the veil on the type of regulations that are likely to be issued by the SIB as this whole matter progresses.
More specifically, I draw the attention of the House to a glaring omission that I hope to seek to remedy if I am asked to serve on the Standing Committee. I refer to the failure to include non-life insurance within the ambit of protection of the consumer. Here I declare an interest as the parliamentary adviser to the British Insurance Brokers Association. I believe that anyone who considers that there is no scope for protecting the purchaser of fire, accident or motor policies has never been in the field and has not witnessed the considerable difficulty that can arise when a purchaser receives a policy that is either wrongly based or inexpertly sold. The Government's simple explanation is that this type of insurance cannot be included in the Bi11 because it does not constitute an investment as defined in the Bill, but that explanation does not go far enough.
I could give many examples of hardship caused by inexpertly arranged policies. It is true that there have been


few frauds in this area, but must we await the development of fraud before adequate consumer protection—which is no more than the purchaser of these non-life type policies has a right to expect—is extended to such policies? I hope that the Government will think again about this glaring omission. I repeat, if I am asked to serve on the Committee, I shall seek to amend the Bill to take care of that omission.
At this stage there is only one other aspect of the Bill to which I wish to draw the attention of the House. I am concerned that the protection offered to the investor when he is dealing with what clause 41 calls "an exempt representative"—before the Bill appeared it was called a tied agent—will be less than when he is dealing with an independent intermediary. In the public interest, there should be equalisation of protection. There should be a straightforward understanding in the public mind either that a person is dealing with an independent intermediary, with all that that implies, or that he is dealing with a representative of a particular life office. At present we are running the risk of obscuring the issue. We should turn our attention to that matter when the Bill goes into Committee.
I give a broad but sincere welcome to the Bill, which is a major step forward in investor protection and places responsibility on the practitioners. That is surely the right way forward. It does that, albeit with powerful guidance from the SIB. It will be welcomed by thousands of honest providers of financial services, just as I believe it will be welcomed by many of those to whom consumer protection will be extended.

Mr. Ian Wrigglesworth: Given the remarks of the hon. Member for Brentwood and Ongar (Mr. McCrindle) and other hon. Members, I imagine that we shall have an interesting Committee stage. I wish the hon. Member for Brentwood and Ongar and Ministers well in their deliberations, which I shall probably not be joining.
The remarks of the hon. Member for Chichester (Mr. Nelson) reminded me of the campaign that he has fought to get legislation of this sort on the statute book. At times the hon. Gentleman has ploughed a very lone furrow in order to try to bring about changes that are similar to those that are contained in the Bill. He reminded me of previous debates, and when he mentioned the old City adage
My word is my bond",
he took me back to my banking examinations in the 1950s when I worked in the Midland bank. Before I came to the House I worked in the National Girobank and I am now an adviser to Barclays bank. I have therefore taken a long interest in this subject.
I welcome the legislation. It is overdue and has been long debated. The previous antagonisms and fears in the City about this sort of legislation have been misplaced, and will be proved to have been misplaced when this measure comes into operation.
I wish to make three general points before commenting on the structure in the Bill and the powers and standing of the SIB and the self-regulatory organisations.
First, as a number of hon. Members have already said, the abuses that have recently taken place in the City, as well as in times gone by, are not typical of the overwhelming majority of those who work in the City.

That needs to be put clearly on the record, because it would be unfair and unjust if a substantial body of people—who are doing a perfectly honest and hard day's work and performing a useful task for the country—were blackened by recent events.
Secondly, fraud and malpractice will still continue even when the Bill gets on to the statute book. I am amazed at the naivety of those who think that we shall get a whiter than white, Persil-clean Lloyd's simply by bringing Lloyd's within the ambit of the Bill. All the evidence that I have seen from other western capitals and institutions in New York and Hong Kong shows that despite massive regulation, fraud still continues, collapses still take place and there is still malpractice. That is not an argument for not putting the measure on the statute book, but we should not run away with the idea that problems will no longer exist if we move in the direction outlined in the Bill.
Thirdly, the City makes a major contribution not only to our financial affairs but to the manufacturing and service sectors and to the life and prosperity of the country. That should also be put on the record.
So far, hon. Members have indulged in semantics in relation to the structure of the regulation prescribed in the Bill, because the gap between what is contained in the Bill and what the Labour party is proposing is not that wide. The proposals in the Bill have substantial statutory backup. The kernel of the argument is the balance between the powers of the SIB and the powers of the SROs. I do not know what the Labour party is proposing in detail; I do not know whether it proposes that there should be no SROs. That is not the case in the United States. Although there is a Securities and Exchange Commission, activities are regulated by the New York stock exchange and various other bodies.
Even under the proposals of the Labour party, I assume that there would still be some self-regulation and that it would not abolish the stock exchange council and the other organisations that exist. The question is what balance there is between the two spheres. In our amendment we have gone for a toughening of the Government's proposals. We do not think that they are as tough as they should be but again it is a matter of balance.
It is not just a question of toughness but of the standing of the organisation. The SIB must not be seen as a City body but as a body representing the public interest and, of course, investor and consumer interests. That is why we have suggested that it should be substantially if not entirely publicly funded, so that it is seen to be a public body and not a creature of the City. We have also suggested that membership of the organisation should be reviewed by a Select Committee of the House. That would be similar to the procedure adopted in the United States for public appointments. That procedure would have a beneficial effect on public appointments in this country if it was more widespread.
By those two principal means, the independence of the SIB would be greatly enhanced and its standing as a body protecting the public interest would thereby be greater. Most important, it would have the confidence of the public because it was seen to be a public authority.
If we were starting with a clean sheet there might be an argument for a different organisation of the sort proposed by the Labour party, but we are not starting with a clean


sheet because we already have a substantial number of self-regulatory organisations. Therefore, it is inappropriate to go for the sort of statutory commission that the Labour party is proposing.
The powers of the SIB should be strengthened. Reference has already been made to the fact that the SIB has a nuclear deterrent power to act against SROs or just the power to issue remonstrance to them if they are not carrying out their duties properly. Clearly the SIB should be able to take action to change the rules of SROs without recourse to the courts. That is too complicated a mean of making changes.
In Committee and during the further passage of the Bill in another place the Government should take into account the way in which regulations will dovetail with international requirements. Virtually all the markets in the City operate on an international scale. In so far as it is possible it is important that our regulations dovetail with regulations in other financial centres around the world so that companies and institutions operating here are not at a disadvantage.
I have some worries that I hope will be considered during the passage of the Bill. I am concerned about overlap and confusion between different SROs. Quite a number of them are being established very late in the day. They are being set up without any track record, without real organisation and without real knowledge of how they will do their job. Everything is being done in a great rush. I hope that the SIB and Ministers will keep a close eye to see that there is not confusion and overlap. Individual institutions will have to register with a plethora of SROs because of the different activities within their organisations, and that may cause problems.
I do not believe that all of the City of London is aware of what will hit it after the big bang takes place. There will be rapid changes and an entirely new environment very different to the past. The aggressiveness, power, might and capital of the new international institutions that will come into the City will be a real challenge to the indigenous British institutions. The City will be much more aggressive and competitive. I hope that the City will become a larger international centre for the benefit of this country. It is because of the increased competitiveness that the Bill, with a tougher framework for the SIB, is necessary. I hope that when it comes back for Third Reading it will be of that character. Then we shall be happy to support it on its way to another place.

Mr. John Browne: I support the Bill but first I declare an interest in that I have worked in the stock exchange not only in London but in New York. I also control a company which may become subject to the Bill.
I support the Bill basically because it strikes a well-informed and good balance between allowing creativity in response to the needs of the market place and control in the interests of all participants, including the investors. By going for self-regulation with teeth we shall have policing by professionals rather than by amateurs.
Two basic issues divide the House. The first is about whether Lloyd's should be included. I shall not speak about that, in deference to other hon. Members who want to speak, because much has been said already.
The other issue is the balance of control. How much control should there be and where should it rest? Should there be State control or market control by self-regulation?

One can examine the two extremes, one in the United States and one in the Euromarkets. In the United States under the Securities and Exchange Commission, there is relatively tight control.
Some have urged that we should have a Securities and Exchange Commission here. I ask those who do so to think of several factors. The United States' markets are different from the British markets and have a different origin. I worked on the New York stock exchange for about three years. The 1933 and 1935 Acts and the Glass-Steagil Act of 1933 have resulted in much higher costs in the market—there is no question about the enormous legal costs and the many delays. They have also led to two essential ingredients—a relatively clear market where everybody can see what is going on, and a relatively clean market. Those factors have added greatly to the size and liquidity of the United States market.
On the other hand, we have a much freer market in the Euromarkets. For an investor in Eurobonds and securities, there are two hidden securities. All the main issues of securities in the Euromarkets are subject to the United States Security and Exchange Commission because, although the issues are made in the Euromarkets, their main market is the American one. The issuers know that if they conunit a crime in a Euromarket, they would be out of issues in the United States. Therefore, the SEC has a hidden effect in the Euromarkets. The second control is the central bank regulations.
The United Kingdom has an immensely important series of markets, which make an enormous contribution to the country in terms both of earnings and of generating business. This allows small companies to grow. Our markets have a different character from those of the United States. There is a need for action because of the advent of the big bang, the resulting growth in size in the markets and the internationalisation of those markets. We are in a good position because we have seen how world markets in currency, bonds, securities and so on have evolved. We are in 1986, not 1936, so we do not have to face the uncertainties that faced the Americans in the early 1930s. We can learn lessons from the SEC and from other markets that may have been over or under-regulated.
We must look first at the essential ingredients of a market for securities, which would include the following factors. First, the market must remain creative and responsive to market needs. Secondly, it must be clear and open. Thirdly, it must be clean—in other words, well-policed. Fourthly, it must be efficient in terms of both execution and cost for the issuer and the investor. Fifthly, it must be liquid—in other words it must be large. Markets become large only if the small investor is adequately protected. Therefore, the Bill should be guided towards ensuring that those factors are kept paramount.
There are two points of difference between the two sides of the House. The Socialist party wrongly believes in control—in other words, a political response to the market—as opposed to our belief in enterprise in responding to the market place and market response. Secondly, it believes in policing by politicians and civil servants, both of whom are amateurs within financial business. We believe in policing by professionals, by people who understand the market. In other words, we believe in self-regulation subject to the Secretary of State.
I urge on my hon. and learned Friend the Under-Secretary three additions to the Bill. One is the protection of the members of the boards. As my hon. Friend the


Member for Croydon, South (Sir W. Clark) has already said, it is vital if they are to do their job properly that they should have protection from libel and so on. Much more emphasis must be placed on the conflict of interest between the issuing or underwriting of securities and the management of assets—fund management. Thirdly, there must be greater emphasis on a complete and full disclosure of all the facets of a trade or bargain, including the volume of securities. It should not be an enormous task, with computerisation, even with the British way of trading. The sterling value of negotiated commissions must be disclosed to the purchaser.
I support the Bill because it is timely and good. It is self-regulation with teeth and that will allow creative professionals to operate and build up the market even more strongly. That will happen when the market is policed by professionals and not amateurs.

Mr. John Butterfill: I congratulate my right hon. and learned Friend the Secretary of State, the other Ministers in the Department and their predecessors on introducing the Bill, which is a most imaginative measure. We have denigrated the service industries too much and we have not appreciated the extent to which they contribute to our national life and are likely to do in the future. As many of the Third world countries develop their own manufacturing capability, so it becomes more important for us to rely on added value and on the specialist services that many of the companies in the City provide. It is, therefore, particularly important that we create an environment in which they can operate efficiently, and where the small and unsophisticated investor is protected. The Bill goes a long way towards that.
I have no personal interest in Lloyd's or any other aspect of the Bill, but it would be wrong to bring Lloyd's into the scope of the Bill. If we are to deal with Lloyd's it must be done in the context of insurance as a whole in a way that will not inhibit British insurers, which face increasingly agressive overseas competition.
I welcome the conditions in the Bill concerning disclosure and support the comments made by my hon. Friend the Member for Winchester (Mr. Browne). I have a deep suspicion of the principle of Chinese walls and I believe that that can be overcome only by the fullest possible disclosure. I am concerned that many of the major investment transactions that the Bill deals with relate to the process of house purchase and the purchase of insurance policies or packages related to house purchase. I hope that the Minister can give some assurance that there will be no conflict between what we impose in the Bill on those who are related to financial services and what is likely to happen in the Building Societies Bill. Many of the activities of building societies impinge absolutely and directly on what is proposed in the Bill.
There are many other areas in the Bill where problems remain unsolved. In particular, there is the conflict between insurance brokers and employed agents. I do not think that the Bill contains the necessary measures to protect the public in that area. I hope that some consistency will be imposed upon the self-regulating organisations in terms of their disciplinary procedures or there will be problems of unfair competition. I hope that the Minister

can reassure us that the Securities and Investments Board will have a responsibility to ensure consistency of disciplinary procedures.
There are many other areas in the Bill where too much is left to regulations. On that matter I agree with my hon. Friend the Member for Chichester (Mr. Nelson). It would be much better if the Bill could spell out exactly what we wish to achieve in those areas. I am particularly concerned about clause 50 which deals with the matter of interest on clients' funds and whether those who are operating in that area will be required to account for interest. The Bill says that at the moment that will be left to regulation. I do not think that that is good enough. We should spell it out that all those who hold clients' funds should account for the interest. That was done in the Estate Agents Act 1979, subject to a de minimis rule. That is right and it should apply to everybody including solicitors, to whom it does not apply now.

Mrs. Kellett-Bowman: Or on house purchase.

Mr. Butterfill: Indeed.
There are many areas where we need to ensure that the regulations are absolutely clear. For example, the fact that we are proposing that an advertisement can be free from regulation, provided that it calls for a prospectus to be available, is open to considerable abuse because the advertisement could be extremely misleading, and then present the would-be investor with a confusing prospectus.
In general, I congratulate my hon. Friends on producing the Bill. I wish it well and hope very much that I shall be able to make a contribution in Committee.

Mr. Bryan Gould: This long-heralded Bill is handicapped by the fact that it is required to meet a purpose that is far wider and more complicated than the one for which it was originally intended. As many hon. Members have reminded us, the genesis of the Bill was a series of scandals six or seven years ago that led to the report prepared by Professor Gower, which led to the White Paper, which has now produced the Bill.
While the Government were taking that leisurely course over getting to grips with City fraud, the City for which Professor Gower had written his report and for which the Bill is intended has, particularly over the past two years, changed almost beyond recognition. The starting point for that process of change—the City revolution, as some would call it—was, again, as many hon. Members reminded us, a deal struck between the then Secretary of State, the right hon. Member for Hertsmere (Mr. Parkinson), and the stock exchange. The deal arose out of the litigation proposed in the restrictive trade practices court, which was almost certain to produce substantial changes in the stock exchange rule book.
Despite all ministerial assurances to the contrary, that deal is universally seen as having been intended to stabilise the situation to buy some time. All that one can say is that rarely can such a step have so directly produced an outcome that was so much the opposite of what was intended. In fact, it launched the City into the big bang and ushered in a period of frenetic change. Far from slowing down the pace of that change, the Government found that they had a tiger by the tail.
As the hon. Member for Stockton, South (Mr. Wrigglesworth) said, it is doubtful whether even the City


itself fully recognises what that revolution will mean. On the evidence of the Bill, it is clear that the Government do not fully recognise that. The City of the future will be dominated by huge international financial conglomerates in which the international giants—Merrill Lynch from New York and Nomura Securities from Tokyo—will play a dominant part. The securities market will no longer be a cosy club; it will be open to all corners. The old clubby atmosphere will have gone. The old institutional safeguards will be swept away. The process will be spurred on by technological change, and the ease of electronic communication. The City will become just one part of a 24-hour international capital market.
The City itself will change in the business of what it sells. It will no longer sell little bits of expert information picked up on the wind, and little bits of gossip. It will find that it has to compete in a way which, up to now, has been unfamiliar to it—in speed, comprehensiveness, accuracy, reliability and price competitiveness, as well as, significantly, the amount of investor protection that is offered. It is worrying that, as a consequence of those changes, the City will be opened up to the full blast of international competition, which manufacturing industry has already had to endure ahead of the City. It will be interesting to see whether the Government adopt the same cavalier attitude towards the fortunes of the City as towards the fortunes of manufacturing industry.
As the hon. Member for Chichester (Mr. Nelson) said, once that process is fully launched, once the huge international firms are shouldering aside smaller domestic enterprises, there will be blood on the carpet. The smaller firms will go to the wall because the volume of business will not expand fast enough to accommodate all those who want to get in on the act.
The gilts market is a good example. No longer will it be a market that is dominated by two major jobbers that have a cosy relationship with the Bank of England. It will be a market in which 29 market makers will be scrambling for position. Not all of them will survive. There will be a premium on those with the largest resources: those who are prepared to sit out losses over a very long period. In that game the foreign giants will have all the cards in their hands. It will create major problems, not least for the Government. I cannot believe that even this Conservative Government will be content if the business of funding its borrowing requirements is in the hands of foreign institutions that have little or no loyalty to the British economy.
In this context there is much more of a problem for the investor. It is inevitable that, as the competition intensifies, corners will be cut and that rules will be bent. As the old safeguards—the institutional divisions between jobbing and broking—go, no longer will there be shared assumptions about the way in which business should be done. In the new international conglomerates, conflicts of interest will inevitably be built in. I agree with the comment of the hon. Member for Winchester (Mr. Browne) that Chinese walls are flimsy structures upon which to place much reliance. With many newcomers, intensified competition and many people scrambling for business, the investor may be at the bottom of the pile. The problems will be compounded when, as was pointed out by the hon. Member for Chichester, the inevitable bear market arrives. There will be a shake-out and the survival of some firms will be in question. At that stage consumer interest will be put under the greatest pressure.
All these developments are taking place against the background of great concern about the level of City fraud. In the five years since Gower was commissioned, the Government have pursued a somewhat leisurely course. Apparently they are in no hurry to put an end to these malpractices or to bring the wrongdoer to book. As some of my hon. Friends have already pointed out, that is in marked contrast to the alacrity and zeal and the tremendous resources that have been devoted to tracking down low level, social security fraud.
During this five-year period, City fraud has grown apace. Scandals have proliferated. An atmosphere akin to a casino has developed, in which huge rewards have been paid to the winners without making too much of a distinction between those winners who abide by the rules and those who do not. We have seen criminals fleeing the jurisdiction of this country and cocking a snook at the authorities from the decks of their yachts. Insider dealing is still rife. If one looks at the Arthur Bell share price before the Guinness bid, one sees a very good illustration of that.
Unfortunately, London is acquiring the reputation of a financial centre that is soft on fraud, where anything goes, where the chances of getting caught are remote, where the police resources that are provided are inadequate to detect fraud and where the prevailing ethos—this is most damaging—fails to distinguish clearly between what is right and what is wrong.
All of these problems are epitomised not just by Johnson Matthey and Lloyd's, although they are important and where everybody can see that things went badly wrong, but, more worryingly, by episodes such as the British Telecom launch. Neither the Government nor the City firms that were involved seem to understand that what happened was unacceptable. May I remind the House that the City firms that were involved professionally in that launch and that were already charging unusually high commissions and fees for their professional services also dealt in the shares. They used their privileged access to the shares, by virtue of their professional capacity, to make huge capital gains for themselves, thereby blurring the essential distinction between acting for others and acting for themselves in the same market.
The reason why I regard this with such seriousness is that it is exactly the kind of practice that can no longer be tolerated in a modern City. Yet that is exactly the sort of practice that will be difficult to control, given the new structures in the Bill. In a situation of revolutionary change, uncertainty and frantic competition, we must ask how the Bill matches up to those responsibilities.
There is much in the Bill that the Opposition can support. We welcome the general structure of authorisation. Contrary to what has been said in wilful obtuseness by alliance Members, we welcome the combination of self-regulation and statutory regulation that is provided in the Bill. Any hon. Member who has taken part or listened for a moment to any of the debates on this subject over the past two or three years, would know that that was the case.
The Government believe that the structure provided in broad terms in the Bill matches up to the general recognition on the part of all but a few backwoodsmen, that the City depends for its survival and future prosperity on effective regulation. If the City will not provide the investor protection that is available elsewhere, investors will take their business elsewhere. There is a clear lesson to be learned from the market in commodities. Ten years


ago Chicago introduced very strict regulations and London dealers thought that that was marvellous as business would come to London because the market would not tolerate the strict regulations in Chicago. Experience has shown that the reverse was true: people like to deal in a situation where they know how they stand and that they are properly protected by the rules.

Mr. Anthony Beaumont-Dark: I would like the hon. Gentleman to comment on one point. Too often it is said that the City and the Government are soft on fraud. We all accept that some of the goings on at Lloyd's were not just unacceptable but disgraceful. However, big changes have been made. The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) made great play within the privilege of the House about the Johnson Matthey affair. Does the hon. Member for Dagenham (Mr. Gould) agree that it is unfair to suggest that nearly all the merchant banks and brokers and the City are soft on fraud, when 98 per cent of the City is highly reputable, is jealous of its reputation and works hard to make a great living for this country's balance of payments?

Mr. Gould: I am surprised that the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) should think it necessary to make that point, since it has been made repeatedly throughout the debate and is, I believe, common ground. The Opposition, and I believe the Government, are rightly concerned about the hon. Gentleman's own assessment of the 2 per cent.—if he wants to place that figure so high; that is a very high volume of money and business—which is not acceptable. We should concentrate our attention upon that 2 per cent.
Although the Opposition endorse the general approach, we find that the real problem with the Bill is not what it contains but what it leaves out. The missed opportunities and the omissions mean that the Bill is simply inadequate to carry the heavy burden that it is required to bear.
The first problem in assessing the likely efficacy of what is proposed is that so much of what is proposed is not in the Bill. So much depends on orders yet to be made by the Secretary of State and on rules yet to be made by the SIB and the SROs, five of which do not yet exist. The rules on how conflicts of interest are to be avoided have yet to be established. The Opposition share the anxieties expressed in some quarters about the proposals for rules concerning the licensing of insurance salesmen as expressed by MIBOC. The rules on the disclosure of commissions are not yet available. Of the seven SROs likely to be recognised, only two have been in existence for any length of time and only one, the stock exchange, has any record of capacity to provide effective regulation. We are left in the dark as to how effective the structure will be in regulating the City.
The second problem is the sheer complexity of what is proposed. There will immediately be an unnecessarily complicated structure arising from the fact that the Secretary of State intends to delegate his powers to an SIB. The SIB in turn will supervise SROs which will then regulate their members. Bearing in mind that five of those SROs do not yet exist, one can see straightaway that there is an inbuilt uncertainty and complexity about that point.
Added to the already complex structure is the possibility that many people will seek direct authorisation. The SIB will, in a sense, act as an SRO bypassing other SROs. In addition, many of the new financial conglomerates will have to belong to several SROs which will, in many cases, have overlapping jurisdictions. For example, investment managers may choose to belong either to NASDIM or to the as yet non-existent investment management regulatory organisation.
Added to that, some institutions, such as banks, building societies and insurance companies would also be subject to a different system of regulation. Banks will be regulated by the Bank of England, insurance companies by the Department of Trade and Industry and building societies by provisions in the new Building Societies Bill. That will create awkward problems of competing jurisdictions and the SROs will have difficult demarcation questions to resolve for themselves.
The stock exchange and the new international securities regulatory organisation have yet to resolve who is to take the lead in regulating the hitherto unregulated market in international securities. And all that is to say nothing of the professionals—solicitors, accountants and others—who, because they offer investment advice, will also have to be brought within the provisions of the Bill and will have to become authorised persons, presumably by virtue of their membership of a recognised professional body.
This whole ramshackle, unwieldy structure might just have a chance of working if there were a clear statutory framework, established by the Bill, to provide us with much-needed coherence. But much of the complexity and uncertainty that is inherent in the Bill arises from the fact that there is a gaping hole at the heart of it.
When one asks the simple question, "Who is to be at the apex of the pyramid to control the structure of statutory rules under which the SROs will regulate themselves from day to day?", one sees that the Bill is strangely silent or gives only a partial and coy answer. We have to wait until clause 96 before there is a glancing reference to a body corporate. It is not identified; one imagines that it will be a group of chaps on whom the Secretary of State's eye might happen to alight. In other words, what is missing is the keystone of the arch of regulations: a body with its own statutory identity, its own powers and, above all, independence from the City.
The problem with the SIB is not only its uncertain status but the fact that it will be financed by, and largely staffed from, the City. It is hard to see how it can be relied upon to regulate effectively those on whom it is financially dependent.

Mr. William Cash: Will the hon. Gentleman give way?

Mr. Gould: No. I am sorry, but I have very little time.
The failure to put in place a self-standing commission, independent of the City, with its own statutory identity and powers, is in marked contrast to the position in virtually every other capital market in the advanced world. Efforts are made to allude to an SEC on the American model, but we do not necessarily want a lawyer-ridden and bureaucratic institution of that type, although we must admit that the SEC has improved its operations considerably in recent years. There are in other jurisdictions many statutory models working well and with


the warm endorsement of the practitioners involved. Ontario is an excellent example which I commend to the Government.
The pity is that, in this respect, the Government have allowed themselves to be overtaken by City opinion. The structure proposed by the Bill—the unsatisfactory compromise contained in it—would probably be rejected by a majority in the City which recognises the desirability, or perhaps only the inevitability, of some form of statutory commission. It is interesting that one of the Secretary of State's predecessors, Sir John Nott, is on record to that effect, and I was much taken by the argument of the hon. Member for Chichester in support of that view.
The problems and uncertainties that will be faced are so great that there must surely be a premium on the simplest, clearest and most direct form of regulation that is available. The Bill is weak-kneed and pussy-footing on that central question. It leaves the whole structure broken-backed and we shall table amendments to remedy that central defect.
Further deficiencies arise out of that central problem surrounding the powers that the SIB is to be granted. The Bill fails to give the SIB the power to enforce changes in the rules of SROs quickly and directly. It also fails to provide the SIB with powers to initiate prosecutions. That is probably explained by the fact that it would be inappropriate to give such powers to a non-statutory body.
Lloyd's is the most startling omission from the Bill. Clause 40 specifically excludes Lloyd's because the Government argue that Lloyd's is primarily an insurance business rather than an investment business. Lloyd's is an insurance business regulated by the DTI, but that should not matter, because it would not be the only body subjected under the Bill to two different systems of regulation. For those who are names in Lloyd's and invest in Lloyd's there can be no doubt that it is an investment business. That investment business has caused all the problems. As an investment business, Lloyd's should be regulated under the Bill.
Clause 40 concedes my point, because it takes the trouble to exclude the investment side of Lloyd's operations. If it were not for clause 40, that investment business would be included in the Bill. We oppose that specific exclusion.
It is difficult to accept the omission of Lloyd's, because Lloyd's has given rise to more anxiety than any other City institution. It almost beggars belief that the main cause of worry has been omitted from a Bill that is designed to regulate the City.
Lloyd's maintains that we have nothing to fear because the scandals occurred before 1982. That may be true, but there is good reason for doubt. There is little in Lloyd's recent history to inspire confidence. There have been the problems with the Inland Revenue that necessitated the huge inquiry, the resignation of the Bank of England appointed chief executive following a row about his independence, the difficulty in prosecuting admitted criminals at Lloyd's and the failure to compensate investors in the PCW and other syndicates for their losses. It could be said that Lloyd's role in that affair was to obstruct rather than to help investors.
Let us consider the case of the then Minister for Trade, the hon. Member for Edinburgh, Central (Mr. Fletcher) who was misled about how many members of the syndicate had passed the insolvency test, which led to the

Minister making a misleading statement to the House. As my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) pointed out, to protect a former chairman of Lloyd's there was an attempt to prevent the disclosure of his involvement in some of the recent difficulties. Those factors mean that we cannot allow Lloyd's to be left to its own devices.
Lloyd's is important as a body but also because it is the best illustration of what can go wrong and of what has gone wrong when there is self-regulation and no effective element of outside supervision. What went wrong at Lloyd's was not caused by a few crooks at the margin. Those at the heart of the Lloyd's establishment embraced the baby syndicates and the reinsurance arrangements that were the vehicle for fraud. The regulators at Lloyd's lost sight of the distinction between what was acceptable and what was not. The City cannot afford the luxury of that introspection. We shall do all that we can to prevent the Bill from allowing Lloyd's to continue on that course.
The announcement made last week of an inquiry is a transparent tactic to head off an all-party campaign to ensure that Lloyd's is brought within proper control. If the hon. Member for Chichester wishes statutory provisions to define the role of the chief executive, the Bill will he his best opportunity for a long time.
The problem is not only that some elements in the City are too close to the subject to make proper judgments. The Government have found it difficult to disentangle themselves from the interests of that dwindling minority in the City who continue to oppose effective regulation. The Bill is a product of a Government who have listened too attentively to the siren voices. They have been too cautious, too timid and too reluctant to face down those who would oppose regulation, and they have been too short-sighted to face up to their responsibilities. The Bill is a disappointment. It does not measure up to the problems that the City of the future will face.
If the Bill passes into law in its present form, it will fail to resolve the problems faced by the City, and, what is more, it will guarantee that further and more far-reaching legislation will shortly be required.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard): Before I address some of the numerous issues which have been raised in this debate may I, for the benefit of those few right hon. and hon. Members present who were not in the House at 3·16 am on 19 December, when I replied to a debate on the Consolidated Fund Bill, repeat what I said then about my own position in relation to Lloyd's?
I ceased all underwriting at Lloyd's on 2 September, the day on which I was appointed to the Government, in accordance with the conventions applying to Ministers in my position. I accordingly ceased on that day to be a member of any of the syndicates in which I had previously participated.
I remain a non-underwriting member of Lloyd's, but I have no further business there save for that arising out of my pre-existing contracts before they expire.

Mr. Gould: As the Minister said, so few people were present when he last made his statement that it may be desirable to amplify it somewhat. Will he confirm that he remains a member of Lloyd's and is entitled, for example, to go into the room? If he cannot, for any reason,


disentangle himself from his involvement with Lloyd's as Peter Cameron-Webb seemed able quickly and successfully to do, does he not regard that as a reason for withdrawing his supervision of the Bill and handing it to another Minister?

Mr. Howard: The answer to that is no.
When my right hon. and learned Friend opened this debate, he began by referring to the importance and success of the financial services sector of our economy. Those remarks have been echoed by several right hon. and hon. Members on both sides of the House who have contributed to the debate. It is a sector that has proved itself capable of responding to the needs of the marketplace and the challenge of overseas competition. The City of London has become established as an essential leg of the world financial tripod competing effectively with New York and Tokyo.

Mr. Austin Mitchell: On a point of order, Mr. Speaker. I was unable to hear the Minister's declaration of his interest in Lloyd's.

Mr. Speaker: I thought that the Minister made a very fair declaration.

Mr. Howard: The City of London has become established as an essential leg of the world financial tripod competing effectively with New York and Tokyo and taking full advantage of its pivotal position in relation to time zones.

Mr. Mitchell: On a point of order, Mr. Speaker. The Minister has told us that he no longer deals at Lloyd's. He has not told us what is his financial interest in Lloyd's.

Mr. Speaker: Order. The Minister made a statement of his interests at the beginning of the debate.

Mr. Howard: I repeat what I said—

Mr. Campbell-Savours: Will the Minister give way?

Mr. Howard: I remain a non-underwriting member of Lloyd's.

Mr. Austin Mitchell: The Minister did not say that.

Mr. Howard: That is what I said earlier, and the record will show that. I have no continuing interest in Lloyd's save for the pre-existing contracts into which I entered, until they expire. Those are the words which I read at the beginning of my speech.

Mr. Mark Fisher: Will the Minister explain when those contracts expire and what they are worth?

Mr. Howard: There is no requirement for me do that. I have no idea what the contracts are worth. It means that I cannot renege on any debts that arise or bring those liabilities to an end in any other way.
I should now like to deal with some of the issues raised in the debate. I should like to express my gratitude to those of my right hon. and hon. Friends who have expressed support for the principles enshrined in the Bill. I will confine myself to singling out for particular mention my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher), who, together with my right hon. Friend the Member for Chingford (Mr. Tebbit), made such an

enormously distinguished contribution to the preparation of this legislation. I am happy to have this opportunity to acknowledge that.
I have no doubt that the principle of the concept of self-regulation or regulation by practitioners within a statutory framework is the right basis on which to build. When it comes to the daily regulation of the way business is done in the market place and the application to those who transact investment business of the principles governing the conduct of that business which are set out in the Bill, there is no alternative to regulation in that market place by those who know how it works, who understand the complexities that often arise—

Mr. Campbell-Savours: rose—

Mr. Howard—: and who are organisationally equipped to take quick and effective action and to make that action stick.
To suggest that in some way this process could be carried out more effectively on the basis of an exclusively statutory system of law, enforced by the courts at the behest of lawyers, reveals a complete failure to understand the nature of the exercise which is necessary and with which we are concerned.

Mr. Campbell-Savours: On a point of order, Mr. Speaker. On a point of order raised by my hon. Friend the Member for Great Grimsby (Mr. Mitchell), the Minister was asked a specific question. He was also asked the question by a number of my hon. Friends. The Minister has not been forthcoming in his declaration. Is it not true that the Minister is in a position to divest himself totally of his interest in Lloyd's? Would he care to deny that that is the case?

Mr. Speaker: The point of order should have been addressed to me and not to the Minister. I cannot answer for him.

Mr. Austin Mitchell: Further to that point of order, Mr. Speaker. In his declaration of interest the Minister told us that he has a continuing income from contracts agreed at Lloyd's before he became a Minister. We need to know whether the continuation of that income depends on the regulation or the non-regulation of Lloyd's under this Bill.

Mrs. Kellett-Bowman: Further to that point of order, Mr. Speaker. Would it not be helpful if Opposition Members understood how Lloyd's liability actually works before they start criticising people who cannot divest themselves of possible losses?

Mr. Speaker: Points of order are a matter for me. I cannot answer for the Minister. What I can say is that the Minister has made a declaration of his interests and has divested himself of that interest, as I understand all Ministers are required to do.

Mr. Foulkes: Further to that point of order, Mr. Speaker. I understood that it was the case that Ministers should divest themselves of all pecuniary interests, all outside interests, that conflict with ministerial responsibility and matters about which they are meant to speak to this House. In your view, Mr. Speaker, would it not be more appropriate for another Minister from this Department who does not have an interest to deal with this Bill?

Mr. Speaker: The hon. Gentleman is now seeking to draw me into the argument. I am not prepared to be drawn into the argument.

Mr. Foulkes: Why not?

Mr. Speaker: It is not a matter for me.

Mr. Jack Straw: Further to that point of order, Mr. Speaker. Page 411 of "Erskine May" says:
No Member who has a direct pecuniary interest in a question is allowed to vote upon it; but, in order to operate as a disqualification, this interest must be immediate and personal,".
My point of order relates to the vote which is due at Ten o'clock. Will you confirm, Mr. Speaker, that it is within the knowledge of this House that your predecessor, Mr. Speaker Thomas, when he had this point raised by me and many of my hon. Friends on the Second Reading of the Lloyd's Bill some three years ago, advised people in exactly the same position as the Minister who were members of Lloyd's, including all those who declared any kind of interest as members of Lloyd's, and those who declared the kind of interest declared this evening by the Minister, not to vote on the Bill? If Mr. Speaker Thomas so advised, why should this Minister be allowed to vote on this Bill?

Mr. Speaker: Perhaps I could clear up that issue immediately. There is a distinction between a private Bill and a public Bill. In matters of public policy, it has been the long-standing practice of the House—originally formulated as far back as 1811 by Mr. Speaker Abbot—that there is no obligation on an hon. Member to refrain from voting on a matter of public policy.

Mr. Straw: Further to the point of order, Mr. Speaker. Page 411 of "Erskine May" directly quotes Mr. Speaker Abbot. The passage which I read out does not relate solely to private Bills; it relates to all Bills. Mr. Speaker Abbot said:
This interest must be a direct pecuniary interest, and separately belonging to the persons whose votes were questioned, and not in common with the rest of his Majesty's subjects, or on a matter of state policy.
State policy, not public policy. We are discussing a Bill that directly relates to a society of Lloyd's of which the Minister is a member and in which he has admitted that he has a direct financial and continuing interest. Surely that comes within what is said on page 411 of "Erskine May".

Mr. Speaker: I do not need any help on this matter because I have carried out my research on it, as the House would expect. I am in no doubt that on matters of public policy—this is a matter of public policy—it has always been the practice for hon. Members to be able to vote. There is a clear distinction between matters of public policy and private Bills.

Mr. Straw: On a point of order—

Mr. Nigel Spearing: On a point of order—

Mr. Howard: rose—

Mr. Speaker: Order. Points of order are for me.

Mr. Straw: Further to the point of order, Mr. Speaker. If what you are saying is exactly correct, will you explain why there is a separate section in "Erskine May" on page 413 on personal interests and votes on private Bills, while the section I have quoted on page 411 plainly relates to Divisions on public Bills? I have now read the whole section. If this is not a direct pecuniary interest which would disqualify an hon. Member from voting on it, what is?

Mr. Gould: Further to the point of order, Mr. Speaker. It may be helpful if we make it clear that the point that is exercising the minds of Opposition Members is not that the Minister failed to make a declaration. We accept that he has made an accurate declaration. We are prepared to accept also that, for one reason or another, he cannot divest himself of his interest. The point that concerns us is whether, in those circumstances, he should present himself at the Dispatch Box to pilot this measure through the House and vote on it at the end of the debate and throughout the Committee. It is on that point that we seek your ruling.

Mr. Speaker: I give my ruling. On matters of public policy, it is in order for an hon. Member to cast his vote.

Mr. Howard: I was dealing earlier—

Mr. Spearing: rose—

Mr. Speaker: I have given my ruling.

Mr. Spearing: On a point of order, Mr. Speaker.

Mr. Howard: I was dealing with the question that my right hon. and learned Friend the Secretary of State raised—

Mr. Spearing: On a point of order, Mr. Speaker. I seek your assistance on the distinction between making a declaration and voting, on which you have ruled, and the question whether a Minister of the Crown who is introducing a Bill may have a direct pecuniary interest in a matter on which he seeks legislation or a potential matter which it can cover. Is not the Minister's interest a separate and different matter from the issue of voting and declaration by an hon. Member on a private Bill?

Mr. Speaker: The Minister, like all Ministers, is subject to the ministerial regulations concerning private interest, and he has so declared.

Mr. Howard: I was dealing with the question some time ago which my right hon. and learned Friend had posed earlier on. He said that it was no use talking about "fully statutory systems" or comparable phrases as if the phrase were a label which could be pinned on a regulatory system as some mark of approval. To discuss the question in that way is to avoid the need to give any real thought to the practicalities of the system and how it would actually work. No one was more guilty of the label-pinning approach to the kind of legislation with which the House is concerned tonight than the right hon. and learned Member for Monklands, East (Mr. J. Smith) who, I am sorry to see, is not in his place at this stage—although there is, no doubt, an excellent reason for that.
The right hon. and learned Gentleman said that he wanted an independent, self-standing commission. He prayed in aid of his case—it was a measure of the weakness of the case— a leading article from the Financial Times of 18 October 1984. In order to bolster his case, the right hon. and learned Gentleman had to go back to an issue of the Financial Times which was published three months before the publication of the White Paper on which this legislation is based and 14 months before the Bill itself was published. If the right hon. and learned Gentleman had been a little more up to date he would have found rather different statements in leading articles of the Financial Times.
No doubt the reason that he did not use the leading article which greeted the White Paper in January of this


year was that that article said that, although there were reservations about the structures proposed by the Government, there were no quarrels with the guiding principles. He could have quoted from the leading article published on the day after the Bill itself was published, but no doubt he chose not to quote from that because it said that the framework set out in the Bill deserved the strongest support. Rather inconvenient for his argument as those leading articles were, therefore, he went back to one published in October 1984 in order to summon up some scant support for the proposition that he was advancing.
The fact is that Opposition Members who have sought to put forward differences between what they want and what is set out in the Bill, have totally failed to identify with any clarity whatever, precisely what it is that they see as the advantage in some artificial hypothetical system which they choose not to identify but which they apparently commend to the House.
The hon. Member for Yeovil (Mr. Ashdown), who spoke on behalf of the Liberal party, put forward a number of detailed points, assuring the House that they represented not the first and perhaps not the second reaction of his party to the proposals in the Bill but either the third or the fourth, I was not quite sure which.

Mr. Ashdown: They are well thought out.

Mr. Howard: He says that they are well thought out.
I do not complain about the fact that he and his party were in a state of doubt about the Bill. What is interesting is the way in which they seek to implement that state of doubt. The way in which they do it, as the hon. Gentleman assured us when he came to tell us how his party would vote, is that they will vote against the Bill tonight. He sought refuge in the reflex which always governs the Liberal party's actions in these matters: when in doubt vote with Labour. He and his colleagues are in doubt about this Bill and they propose to manifest that doubt by going into the Lobby with Labour Members when it comes to the vote tonight.
I turn now to Lloyd's and why it is excluded from the Bill. The reason why Lloyd's is not covered by the Bill is simple. The main business of Lloyd's is insurance, insurance that is written purely to provide protection and which is not the kind of long-term investment insurance which is covered by the Bill. [Interruption.]

Mr. Speaker: Order.

Mr. Howard: The way in which Lloyd's is organised means that carrying on that insurance business necessarily implies that some investment business is carried out—for example, the investment management of insurance premiums received by members of Lloyd's before claims are paid—but the essence of Lloyd's is insurance business, which is therefore significantly different from the investment business which is the concern of the Bill.
There are considerable advantages in regulating all Lloyd's activities and protecting fully the policyholders and names in a single piece of legislation and within a single, comprehensive framework. Such a piece of legislation exists. It is the Lloyd's Act 1982, giving the council of Lloyd's very wide-ranging powers. Hon. Members must recognise that it is the protection of the

policyholders which is paramount and that Lloyd's has an enviable record of success in this area: no valid claim from a policyholder has ever failed to be met.
We recognise the anxiety that exists in many quarters about the adequacy of the 1982 Act, and the working of the regulatory system set up under it in terms of the protection which is afforded to names. That is why my right hon. and learned Friend set up an inquiry into the matter. That inquiry will be full, vigorous and independent, and I am grateful to right hon. and hon. Gentlemen who have welcomed it.
My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) gave the House in measured tones his doubts about the exclusion of Lloyd's from the Bill, and dealt with those reasons which he had not found persuasive, but recognised that in the light of the inquiry there were advantages in waiting for its recommendations and conclusions before taking any decision. Clearly, some people have not been satisfied by that action, and have called for the inclusion of Lloyd's in the Bill in advance of the outcome of the inquiry. They seek to deny the House the advantage of the inquiry's examination of the problem, and its conclusions and recommendations before deciding what action should be taken.
To bring Lloyd's within the scope of the Bill would involve forfeiting those advantages, introducing the extremely difficult practical problems of marrying two different systems of regulations contained in two different sets of legislation, and imposing substantial and unnecessary burdens on both Lloyd's and the regulation of financial services envisaged by the Bill. None of those who have complained about the omission of Lloyd's from the Bill have dealt adequately with those difficulties.
Some right hon. and hon. Gentlemen have raised questions about the extent to which the Bill provides powers for dealing with enforcement. The Government's position is clear. We have repeatedly made clear our determination to tackle fraud, but it is also important to tackle less serious malpractice which results in investors getting a raw deal. The Bill will help to do both. The requirement to be authorised will help to keep potential fraudsters out of investment businesses. Contravention of the requirement will be a criminal offence, and relatively easy to prove. The Bill will make it easier to detect fraud and malpractice. There will be extensive powers to monitor and investigate authorised businesses. The combined investigation resources of the Department of Trade and Industry, the designated agency and the SROs will make it more difficult for wrongdoers to escape detection. Problems once discovered must be effectively dealt with. We are strengthening the criminal law and increasing the resources devoted to enforcement. Criminal law is only part of the solution. Disciplinary action and remedies to recover investors' losses from misconduct are equally important.
The Bill extends the existing rights of an investor to sue a business. That may be expensive, so the Bill enables the Secretary of State or the agency to go to court on an investor's behalf. It is even better to resolve disputes without having to go to court, and I welcome the proposal of the Securities and Investments Board to set up an ombudsman scheme.
The Bill provides tough powers against offenders. The Secretary of State or the agency can withdraw or suspend authorisation, and can use a wide range of intervention powers to protect investors. Those measures will not only


catch misbehaviour, but will deter it, which is even more important. I am confident that the Bill will provide all the powers necessary to investigate and act on all sorts of fraud and malpractice. By harnessing the expertise and resources of the City with those of the Government we should be able to secure better protection for investors.
Shortly after I was appointed, I wrote to many right hon. and hon. Members who had expressed an interest in the subject, including Labour Members, saying that I hoped that we could approach this important legislative measure in a constructive and non-partisan spirit so as to ensure that we ended up with the best possible solutions to the problems with which the Bill seeks to deal. That is my objective, and I am confident that we can achieve it. In that spirit I commend the Bill to the House.

Mr. Speaker: The original Question was, That the Bill be now read a Second time, since when an amendment has been moved—

Mr. Walter Harrison: On a point of order—

Mr. John Cope (Treasurer of Her Majesty's Household): rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question accordingly put, That the amendment be made:—

The House divided: Ayes 184, Noes 359.

Division No. 35]
[10 pm


AYES


Abse, Leo
Cunliffe, Lawrence


Adams, Allen (Paisley N)
Cunningham, Dr John


Anderson, Donald
Dalyell, Tam


Archer, Rt Hon Peter
Davies, Rt Hon Denzil (L'lli)


Ashton, Joe
Davies, Ronald (Caerphilly)


Atkinson, N. (Tottenham)
Davis, Terry (B'ham, H'ge H'l)


Bagier, Gordon A. T.
Deakins, Eric


Banks, Tony (Newham NW)
Dewar, Donald


Barnett, Guy
Dixon, Donald


Barron, Kevin
Dobson, Frank


Bell, Stuart
Dormand, Jack


Benn, Rt Hon Tony
Douglas, Dick


Bennett, A. (Dent'n &amp; Red'sh)
Dubs, Alfred


Bermingham, Gerald
Dunwoody, Hon Mrs G.


Bidwell, Sydney
Eadie, Alex


Blair, Anthony
Eastham, Ken


Boyes, Roland
Edwards, Bob (W'h'mpt'n SE)


Brown, Gordon (D'f'mline E)
Evans, John (St. Helens N)


Brown, N. (N'c'tle-u-Tyne E)
Ewing, Harry


Brown, R. (N'c'tle-u-Tyne N)
Fatchett, Derek


Brown, Ron (E'burgh, Leith)
Faulds, Andrew


Buchan, Norman
Fields, T. (L'pool Broad Gn)


Caborn, Richard
Fisher, Mark


Callaghan, Rt Hon J.
Flannery, Martin


Callaghan, Jim (Heyw'd &amp; M)
Foot, Rt Hon Michael


Campbell-Savours, Dale
Forrester, John


Clark, Dr David (S Shields)
Foster, Derek


Clarke, Thomas
Foulkes, George


Clay, Robert
Fraser, J. (Norwood)


Clelland, David Gordon
Freeson, Rt Hon Reginald


Clwyd, Mrs Ann
Garrett, W. E.


Cocks, Rt Hon M. (Bristol S.)
George, Bruce


Cohen, Harry
Gilbert, Rt Hon Dr John


Coleman, Donald
Godman, Dr Norman


Concannon, Rt Hon J. D.
Gould, Bryan


Conlan, Bernard
Gourlay, Harry


Cook, Frank (Stockton North)
Hamilton, James (M'well N)


Cook, Robin F. (Livingston)
Hamilton, W. W. (Fife Central)


Corbett, Robin
Hardy, Peter


Cox, Thomas (Tooting)
Harman, Ms Harriet


Craigen, J. M.
Harrison, Rt Hon Walter


Crowther, Stan
Hart, Rt Hon Dame Judith





Heffer, Eric S.
Patchett, Terry


Hogg, N. (C'nauld &amp; Kilsyth)
Pendry, Tom


Holland, Stuart (Vauxhall)
Pike, Peter


Home Robertson, John
Powell, Raymond (Ogmore)


Howell, Rt Hon D. (S'heath)
Prescott, John


Hoyle, Douglas
Radice, Giles


Hughes, Robert (Aberdeen N)
Randall, Stuart


Hughes, Roy (Newport East)
Redmond, M.


Hughes, Sean (Knowsley S)
Rees, Rt Hon M. (Leeds S)


Janner, Hon Greville
Richardson, Ms Jo


John, Brynmor
Roberts, Ernest (Hackney N)


Jones, Barry (Alyn &amp; Deeside)
Robertson, George


Kaufman, Rt Hon Gerald
Robinson, G. (Coventry NW)


Kilroy-Silk, Robert
Rogers, Allan


Kinnock, Rt Hon Neil
Rooker, J. W.


Lambie, David
Rowlands, Ted


Lamond, James
Ryman, John


Leadbitter, Ted
Sedgemore, Brian


Leighton, Ronald
Sheerman, Barry


Lewis, Ron (Carlisle)
Sheldon, Rt Hon R.


Lewis, Terence (Worsley)
Shore, Rt Hon Peter


Litherland, Robert
Short, Ms Clare (Ladywood)


Lloyd, Tony (Stretford)
Silkin, Rt Hon J.


Lofthouse, Geoffrey
Skinner, Dennis


Loyden, Edward
Smith, C. (Isl'ton S &amp; F'bury)


McCartney, Hugh
Smith, Rt Hon J, (M'ds E)


McDonald, Dr Oonagh
Snape, Peter


McGuire, Michael
Soley, Clive


McKay, Allen (Penistone)
Spearing, Nigel


McNamara, Kevin
Stott, Roger


McTaggart, Robert
Strang, Gavin


Madden, Max
Straw, Jack


Marek, Dr John
Thomas, Dafydd (Merioneth)


Marshall, David (Shettleston)
Thomas, Dr R. (Carmarthen)


Martin, Michael
Thompson, J. (Wansbeck)


Mason, Rt Hon Roy
Thorne, Stan (Preston)


Maxton, John
Torney, Tom


Maynard, Miss Joan
Wardell, Gareth (Gower)


Meacher, Michael
Wareing, Robert


Michie, William
Weetch, Ken


Mikardo, Ian
Welsh, Michael


Millan, Rt Hon Bruce
White, James


Mitchell, Austin (G't Grimsby)
Wigley, Dafydd


Morris, Rt Hon A. (W'shawe)
Williams, Rt Hon A.


Morris, Rt Hon J. (Aberavon)
Wilson, Gordon


Nellist, David
Winnick, David


Oakes, Rt Hon Gordon
Woodall, Alec


O'Brien, William
Young, David (Bolton SE)


O'Neill, Martin



Orme, Rt Hon Stanley
Tellers for the Ayes:


Park, George
Mr. John McWilliam and


Parry, Robert
Mr. Frank Haynes.


NOES


Adley, Robert
Blackburn, John


Alexander, Richard
Blaker, Rt Hon Sir Peter


Alison, Rt Hon Michael
Body, Sir Richard


Alton, David
Bonsor, Sir Nicholas


Amess, David
Bottomley, Peter


Ancram, Michael
Bottomley, Mrs Virginia


Ashby, David
Bowden, A. (Brighton K'to'n)


Ashdown, Paddy
Bowden, Gerald (Dulwich)


Aspinwall, Jack
Braine, Rt Hon Sir Bernard


Atkins, Rt Hon Sir H.
Brandon-Bravo, Martin


Atkins, Robert (South Ribble)
Bright, Graham


Atkinson, David (B'm'th E)
Brinton, Tim


Baker, Rt Hon K. (Mole Vall'y)
Brittan, Rt Hon Leon


Baker, Nicholas (Dorset N)
Brooke, Hon Peter


Baldry, Tony
Brown, M. (Brigg &amp; Cl'thpes)


Banks, Robert (Harrogate)
Browne, John


Batiste, Spencer
Bruce, Malcolm


Beaumont-Dark, Anthony
Bruinvels, Peter


Beith, A. J.
Bryan, Sir Paul


Bellingham, Henry
Buchanan-Smith, Rt Hon A.


Bendall, Vivian
Buck, Sir Antony


Benyon, William
Budgen, Nick


Best, Keith
Bulmer, Esmond


Bevan, David Gilroy
Burt, Alistair


Biffen, Rt Hon John
Butcher, John


Biggs-Davison, Sir John
Butler, Rt Hon Sir Adam






Butterfill, John
Harvey, Robert


Carlile, Alexander (Montg'y)
Haselhurst, Alan


Carlisle, John (Luton N)
Hawkins, C. (High Peak)


Carlisle, Kenneth (Lincoln)
Hawkins, Sir Paul (N'folk SW)


Carlisle, Rt Hon M. (W'ton S)
Hawksley, Warren


Carttiss, Michael
Hayes, J.


Cartwright, John
Hayhoe, Rt Hon Barney


Cash, William
Hayward, Robert


Chalker, Mrs Lynda
Heathcoat-Amory, David


Channon, Rt Hon Paul
Heddle, John


Chapman, Sydney
Henderson, Barry


Chope, Christopher
Heseltine, Rt Hon Michael


Churchill, W. S.
Hickmet, Richard


Clark, Hon A. (Plym'th S'n)
Hicks, Robert


Clark, Dr Michael (Rochford)
Higgins, Rt Hon Terence L.


Clark, Sir W. (Croydon S)
Hind, Kenneth


Clarke, Rt Hon K. (Rushcliffe)
Hirst, Michael


Clegg, Sir Walter
Holland, Sir Philip (Gedling)


Cockeram, Eric
Holt, Richard


Colvin, Michael
Hordern, Sir Peter


Conway, Derek
Howard, Michael


Coombs, Simon
Howarth, Alan (Stratf'd-on-A)


Cope, John
Howarth, Gerald (Cannock)


Corrie, John
Howell, Rt Hon D. (G'ldford)


Couchman, James
Howell, Ralph (Norfolk, N)


Cranborne, Viscount
Howells, Geraint


Crouch, David
Hubbard-Miles, Peter


Currie, Mrs Edwina
Hughes, Simon (Southwark)


Dickens, Geoffrey
Hunt, David (Wirral)


Dicks, Terry
Hunt, John (Ravensbourne)


Dorrell, Stephen
Hunter, Andrew


Douglas-Hamilton, Lord J.
Hurd, Rt Hon Douglas


Dover, Den
Irving, Charles


du Cann, Rt Hon Sir Edward
Jenkin, Rt Hon Patrick


Dunn, Robert
Jessel, Toby


Durant, Tony
Johnson Smith, Sir Geoffrey


Dykes, Hugh
Jones, Gwilym (Cardiff N)


Edwards, Rt Hon N. (P'broke)
Jopling, Rt Hon Michael


Evennett, David
Joseph, Rt Hon Sir Keith


Eyre, Sir Reginald
Kellett-Bowman, Mrs Elaine


Fallon, Michael
Kennedy, Charles


Farr, Sir John
Key, Robert


Favell, Anthony
King, Roger (B'ham N'field)


Fenner, Mrs Peggy
Kirkwood, Archy


Finsberg, Sir Geoffrey
Knight, Greg (Derby N)


Fletcher, Alexander
Knowles, Michael


Fookes, Miss Janet
Knox, David


Forman, Nigel
Lamont, Norman


Forsyth, Michael (Stirling)
Lang, Ian


Forth, Eric
Latham, Michael


Fowler, Rt Hon Norman
Lawler, Geoffrey


Fox, Marcus
Lawrence, Ivan


Franks, Cecil
Lawson, Rt Hon Nigel


Fraser, Peter (Angus East)
Lee, John (Pendle)


Freeman, Roger
Leigh, Edward (Gainsbor'gh)


Freud, Clement
Lennox-Boyd, Hon Mark


Gale, Roger
Lewis, Sir Kenneth (Stamf'd)


Galley, Roy
Lightbown, David


Gardiner, George (Reigate)
Lilley, Peter


Garel-Jones, Tristan
Livsey, Richard


Gilmour, Rt Hon Sir Ian
Lloyd, Ian (Havant)


Goodhart, Sir Philip
Lloyd, Peter, (Fareham)


Goodlad, Alastair
Lord, Michael


Gorst, John
Lyell, Nicholas


Gow, Ian
McCrindle, Robert


Gower, Sir Raymond
McCurley, Mrs Anna


Grant, Sir Anthony
Macfarlane, Neil


Greenway, Harry
MacGregor, Rt Hon John


Gregory, Conal
MacKay, Andrew (Berkshire)


Griffiths, Peter (Portsm'th N)
MacKay, John (Argyll &amp; Bute)


Grist, Ian
Maclean, David John


Ground, Patrick
Maclennan, Robert


Grylls, Michael
McNair-Wilson, M. (N'bury)


Hamilton, Hon A. (Epsom)
McNair-Wilson, P. (New F'st)


Hampson, Dr Keith
McQuarrie, Albert


Hancock, Mr. Michael
Madel, David


Hanley, Jeremy
Major, John


Hannam,John
Malins, Humfrey


Hargreaves, Kenneth
Malone, Gerald


Harris, David
Maples, John





Marlow, Antony
Skeet, Sir Trevor


Marshall, Michael (Arundel)
Smith, Sir Dudley (Warwick)


Mates, Michael
Smith, Tim (Beaconsfield)


Maude, Hon Francis
Soames, Hon Nicholas


Mawhinney, Dr Brian
Speed, Keith


Maxwell-Hyslop, Robin
Speller, Tony


Mayhew, Sir Patrick
Spence, John


Meadowcroft, Michael
Spencer, Derek


Mellor, David
Spicer, Jim (Dorset W)


Merchant, Piers
Spicer, Michael (S Worcs)


Meyer, Sir Anthony
Squire, Robin


Miller, Hal (B'grove)
Stanbrook, Ivor


Mills, lain (Meriden)
Stanley, John


Miscampbell, Norman
Steel, Rt Hon David


Monro, Sir Hector
Steen, Anthony


Montgomery, Sir Fergus
Stern, Michael


Moore, Rt Hon John
Stevens, Lewis (Nuneaton)


Morrison, Hon P. (Chester)
Stewart, Allan (Eastwood)


Moynihan, Hon C.
Stewart, Andrew (Sherwood)


Mudd, David
Stewart, Ian (Hertf'dshire N)


Murphy, Christopher
Stokes, John


Neale, Gerrard
Stradling Thomas, Sir John


Nelson, Anthony
Sumberg, David


Neubert, Michael
Tapsell, Sir Peter


Newton, Tony
Taylor, John (Solihull)


Nicholls, Patrick
Taylor, Teddy (S'end E)


Norris, Steven
Temple-Morris, Peter


Onslow, Cranley
Terlezki, Stefan


Oppenheim, Phillip
Thomas, Rt Hon Peter


Ottaway, Richard
Thompson, Donald (Calder V)


Page, Sir John (Harrow W)
Thompson, Patrick (N'ich N)


Page, Richard (Herts SW)
Thorne, Neil (Ilford S)


Parris, Matthew
Thornton, Malcolm


Patten, Christopher (Bath)
Thurnham, Peter


Patten, J. (Oxf W &amp; Abdgn)
Townend, John (Bridlington)


Pattie, Geoffrey
Townsend, Cyril D. (B'heath)


Pawsey, James
Tracey, Richard


Peacock, Mrs Elizabeth
Trippier, David


Penhaligon, David
Trotter, Neville


Pollock, Alexander
Twinn, Dr Ian


Porter, Barry
van Straubenzee, Sir W.


Portillo, Michael
Vaughan, Sir Gerard


Powell, William (Corby)
Viggers, Peter


Powley, John
Waddington, David


Prentice, Rt Hon Reg
Wainwright, R.


Price, Sir David
Waldegrave, Hon William


Proctor, K. Harvey
Walden, George


Pym, Rt Hon Francis
Walker, Rt Hon P. (W'cester)


Raffan, Keith
Wallace, James


Raison, Rt Hon Timothy
Waller, Gary


Rathbone, Tim
Walters, Dennis


Renton, Tim
Ward, John


Rhys Williams, Sir Brandon
Wardle, C. (Bexhill)


Ridley, Rt Hon Nicholas
Warren, Kenneth


Ridsdale, Sir Julian
Watson, John


Rifkind, Rt Hon Malcolm
Watts, John


Roberts, Wyn (Conwy)
Wells, Bowen (Hertford)


Robinson, Mark (N'port W)
Wells, Sir John (Maidstone)


Roe, Mrs Marion
Wheeler, John


Ross, Stephen (Isle of Wight)
Whitfield, John


Rost, Peter
Whitney, Raymond


Rowe, Andrew
Wiggin, Jerry


Rumbold, Mrs Angela
Wilkinson, John


Ryder, Richard
Winterton, Mrs Ann


Sackville, Hon Thomas
Wolfson, Mark


Sainsbury, Hon Timothy
Wood, Timothy


St. John-Stevas, Rt Hon N.
Woodcock, Michael


Sayeed, Jonathan
Wrigglesworth, Ian


Scott, Nicholas
Yeo, Tim


Shaw, Giles (Pudsey)
Young, Sir George (Acton)


Shaw, Sir Michael (Scarb')
Younger, Rt Hon George


Shelton, William (Streatham)



Shepherd, Richard (Aldridge)
Tellers for the Noes:


Shersby, Michael
Mr. Carol Mather and


Silvester, Fred
Mr. Robert Boscawen.


Sims, Roger

Main Question put forthwith, pursuant to Standing Order No. 41 (Amendment on second or third reading.)

The House divided: Ayes 335, Noes 205.

Division No. 36]
[10.15pm


Adley, Robert
du Cann, Rt Hon Sir Edward


Alexander, Richard
Dunn, Robert


Alison, Rt Hon Michael
Durant, Tony


Amess, David
Dykes, Hugh


Ancram, Michael
Edwards, Rt Hon N. (P'broke)


Ashby, David
Evennett, David


Aspinwall, Jack
Eyre, Sir Reginald


Atkins, Rt Hon Sir H.
Fallon, Michael


Atkins, Robert (South Ribble)
Farr, Sir John


Atkinson, David (B'm'th E)
Favell, Anthony


Baker. Rt Hon K. (Mole Vall'y,)
Fenner, Mrs Peggy


Baker, Nicholas (Dorset N)
Finsberg, Sir Geoffrey


Baldry, Tony
Fletcher, Alexander


Banks, Robert (Harrogate)
Fookes, Miss Janet


Batiste, Spencer
Forman, Nigel


Beaumont-Dark, Anthony
Forsyth, Michael (Stirling)


Bellingham, Henry
Forth, Eric


Bendall, Vivian
Fowler, Rt Hon Norman


Benyon, William
Fox, Marcus


Best, Keith
Franks, Cecil


Bevan, David Gilroy
Fraser, Peter (Angus East)


Biffen, Rt Hon John
Freeman, Roger


Biggs-Davison, Sir John
Gale, Roger


Blackburn, John
Galley, Roy


Blaker, Rt Hon Sir Peter
Gardiner, George (Reigate)


Body, Sir Richard
Garel-Jones, Tristan


Bonsor, Sir Nicholas
Gilmour, Rt Hon Sir Ian


Bottomley, Peter
Goodhart, Sir Philip


Bottomley, Mrs Virginia
Goodlad, Alastair


Bowden, A. (Brighton K'to'n)
Gorst, John


Bowden, Gerald (Dulwich)
Gow, Ian


Braine, Rt Hon Sir Bernard
Gower, Sir Raymond


Brandon-Bravo, Martin
Grant, Sir Anthony


Bright, Graham
Greenway, Harry


Brinton, Tim
Gregory, Conal


Brittan, Rt Hon Leon
Griffiths, Peter (Portsm'th N)


Brooke, Hon Peter
Grist, Ian


Brown, M. (Brigg &amp; Cl'thpes)
Ground, Patrick


Browne, John
Grylls, Michael


Bruinvels, Peter
Hamilton, Hon A. (Epsom)


Bryan, Sir Paul
Hampson, Dr Keith


Buchanan-Smith, Rt Hon A.
Hanley, Jeremy


Buck, Sir Antony
Hannam,John


Budgen, Nick
Hargreaves, Kenneth


Bulmer, Esmond
Harris, David


Burt, Alistair
Harvey, Robert


Butcher, John
Haselhurst, Alan


Butler, Rt Hon Sir Adam
Hawkins, C. (High Peak)


Butterfill, John
Hawkins, Sir Paul (N'folk SW)


Carlisle, John (Luton N)
Hawksley, Warren


Carlisle, Kenneth (Lincoln)
Hayes, J.


Carlisle, Rt Hon M. (W'ton S)
Hayhoe, Rt Hon Barney


Carttiss, Michael
Hayward, Robert


Cash, William
Heathcoat-Amory, David


Chalker, Mrs Lynda
Heddle, John


Channon, Rt Hon Paul
Henderson, Barry


Chapman, Sydney
Heseltine, Rt Hon Michael


Chope, Christopher
Hickmet, Richard


Churchill, W. S.
Hicks, Robert


Clark, Dr Michael (Rochford)
Higgins, Rt Hon Terence L.


Clark, Sir W. (Croydon S)
Hind, Kenneth


Clegg, Sir Walter
Hirst, Michael


Cockeram, Eric
Holland, Sir Philip (Gedling)


Colvin, Michael
Holt, Richard


Conway, Derek
Hordern, Sir Peter


Coombs, Simon
Howard, Michael


Cope, John
Howarth, Alan (Stratf'd-on-A)


Corrie, John
Howarth, Gerald (Cannock)


Couchman, James
Howell, Rt Hon D. (G'ldford)


Cranborne, Viscount
Howell, Ralph (Norfolk, N)


Crouch, David
Hubbard-Miles, Peter


Currie, Mrs Edwina
Hunt, David (Wirral)


Dickens, Geoffrey
Hunt, John (Ravensbourne)


Dicks, Terry
Hunter, Andrew


Dorrell, Stephen
Hurd, Rt Hon Douglas


Douglas-Hamilton, Lord J.
Irving, Charles


Dover, Den
Jenkin, Rt Hon Patrick





Jessel, Toby
Porter, Barry


Johnson Smith, Sir Geoffrey
Portillo, Michael


Jones, Gwilym (Cardiff N)
Powell, William (Corby)


Jopling, Rt Hon Michael
Powley, John


Joseph, Rt Hon Sir Keith
Prentice, Rt Hon Reg


Kellett-Bowman, Mrs Elaine
Price, Sir David


Key, Robert
Proctor, K. Harvey


King, Roger (B'ham N'field)
Pym, Rt Hon Francis


Knight, Greg (Derby N)
Raffan, Keith


Knowles, Michael
Raison, Rt Hon Timothy


Knox, David
Rathbone, Tim


Lamont, Norman
Renton, Tim


Lang, Ian
Rhys Williams, Sir Brandon


Latham, Michael
Ridley, Rt Hon Nicholas


Lawler, Geoffrey
Ridsdale, Sir Julian


Lawrence, Ivan
Rifkind, Rt Hon Malcolm


Lawson, Rt Hon Nigel
Roberts, Wyn (Conwy)


Lee, John (Pendle)
Robinson, Mark (N'port W)


Leigh, Edward (Gainsbor'gh)
Roe, Mrs Marion


Lennox-Boyd, Hon Mark
Rost, Peter


Lewis, Sir Kenneth (Stamf'd)
Rowe, Andrew


Lightbown, David
Rumbold, Mrs Angela


Lilley, Peter
Ryder, Richard


Lloyd, Ian (Havant)
Sackville, Hon Thomas


Lloyd, Peter, (Fareham)
Sainsbury, Hon Timothy


Lord, Michael
Sayeed, Jonathan


Lyell, Nicholas
Scott, Nicholas


McCrindle, Robert
Shaw, Giles (Pudsey)


McCurley, Mrs Anna
Shaw, Sir Michael (Scarb')


Macfarlane, Neil
Shelton, William (Streatham)


MacGregor, Rt Hon John
Shepherd, Richard (Aldridge)


MacKay, Andrew (Berkshire)
Shersby, Michael


MacKay, John (Argyll &amp; Bute)
Silvester, Fred


Maclean, David John
Sims, Roger


McNair-Wilson, M. (N'bury)
Skeet, Sir Trevor


McNair-Wilson, P. (New F'st)
Smith, Sir Dudley (Warwick)


McQuarrie, Albert
Smith, Tim (Beaconsfield)


Madel, David
Soames, Hon Nicholas


Major, John
Speed, Keith


Malins, Humfrey
Speller, Tony


Malone, Gerald
Spence, John


Maples, John
Spencer, Derek


Marlow, Antony
Spicer, Jim (Dorset W)


Marshall, Michael (Arundel)
Spicer, Michael (S Worcs)


Mates, Michael
Squire, Robin


Maude, Hon Francis
Stanbrook, Ivor


Mawhinney, Dr Brian
Stanley, John


Maxwell-Hyslop, Robin
Steen, Anthony


Mayhew, Sir Patrick
Stern, Michael


Mellor, David
Stevens, Lewis (Nuneaton)


Merchant, Piers
Stewart, Allan (Eastwood)


Meyer, Sir Anthony
Stewart, Andrew (Sherwood)


Miller, Hal (B'grove)
Stewart, Ian (Hertf'dshire N)


Mills, Iain (Meriden)
Stokes, John


Miscampbell, Norman
Stradling Thomas, Sir John


Monro, Sir Hector
Sumberg, David


Montgomery, Sir Fergus
Tapsell, Sir Peter


Moore, Rt Hon John
Taylor, John (Solihull)


Morrison, Hon P. (Chester)
Taylor, Teddy (S'end E)


Moynihan, Hon C.
Temple-Morris, Peter


Mudd, David
Terlezki, Stefan


Murphy, Christopher
Thomas, Rt Hon Peter


Neale, Gerrard
Thompson, Donald (Calder V)


Nelson, Anthony
Thompson, Patrick (N'ich N)


Neubert, Michael
Thorne, Neil (Ilford S)


Newton, Tony
Thornton, Malcolm


Nicholls, Patrick
Thurnham, Peter


Norris, Steven
Townend, John (Bridlington)


Onslow, Cranley
Townsend, Cyril D. (B'heath)


Oppenheim, Phillip
Tracey, Richard


Ottaway, Richard
Trippier, David


Page, Sir John (Harrow W)
Trotter, Neville


Page, Richard (Herts SW)
Twinn, Dr Ian


Parris, Matthew
van Straubenzee, Sir W.


Patten, Christopher (Bath)
Vaughan, Sir Gerard


Patten, J. (Oxf W &amp; Abdgn)
Viggers, Peter


Pattie, Geoffrey
Waddington, David


Pawsey, James
Waldegrave, Hon William


Peacock, Mrs Elizabeth
Walden, George


Pollock, Alexander
Walker, Rt Hon P. (W'cester)






Waller, Gary
Wilkinson, John


Walters, Dennis
Winterton, Mrs Ann


Ward, John
Wolfson, Mark


Wardle, C. (Bexhill)
Wood, Timothy


Warren, Kenneth
Woodcock, Michael


Watson, John
Yeo, Tim


Watts, John
Young, Sir George (Acton)


Wells, Bowen (Hertford)
Younger, Rt Hon George


Wells, Sir John (Maidstone)



Wheeler, John
Tellers for the Ayes:


Whitfield, John
Mr. Carol Mather and


Whitney, Raymond
Mr. Robert Boscawen.


Wiggin, Jerry



NOES


Abse, Leo
Cunliffe, Lawrence


Adams, Allen (Paisley N)
Cunningham, Dr John


Alton, David
Dalyell, Tam


Anderson, Donald
Davies, Rt Hon Denzil (L'lli)


Archer, Rt Hon Peter
Davies, Ronald (Caerphilly)


Ashdown, Paddy
Davis, Terry (B'ham, H'ge H'l)


Ashton, Joe
Deakins, Eric


Atkinson, N. (Tottenham)
Dewar, Donald


Bagier, Gordon A. T.
Dixon, Donald


Banks, Tony (Newham NW)
Dobson, Frank


Barnett, Guy
Dormand, Jack


Barron, Kevin
Douglas, Dick


Beith, A. J.
Dubs, Alfred


Bell, Stuart
Dunwoody, Hon Mrs G.


Benn, Rt Hon Tony
Eadie, Alex


Bennett, A. (Dent'n &amp; Red'sh)
Eastham, Ken


Bermingham, Gerald
Edwards, Bob (W'h'mpt'n SE)


Bidwell, Sydney
Evans, John (St. Helens N)


Blair, Anthony
Ewing, Harry


Boyes, Roland
Fatchett, Derek


Brown, Gordon (D'f'mline E)
Faulds, Andrew


Brown, N. (N'c'tle-u-Tyne E)
Fields, T. (L 'pool Broad Gn)


Brown, R. (N'c'tle-u-Tyne N)
Fisher, Mark


Brown, Ron (E'burgh, Leith)
Flannery, Martin


Bruce, Malcolm
Foot, Rt Hon Michael


Buchan, Norman
Forrester, John


Caborn, Richard
Foster, Derek


Callaghan, Rt Hon J.
Foulkes, George


Callaghan, Jim (Heyw'd &amp; M)
Fraser, J. (Norwood)


Campbell-Savours, Dale
Freeson, Rt Hon Reginald


Carlile, Alexander (Montg'y)
Freud, Clement


Cartwright, John
Garrett, W. E.


Clark, Dr David (S Shields)
George, Bruce


Clarke, Thomas
Gilbert, Rt Hon Dr John


Clay, Robert
Godman, Dr Norman


Clelland, David Gordon
Gould, Bryan


Clwyd, Mrs Ann
Gourlay, Harry


Cocks, Rt Hon M. (Bristol S.)
Hamilton, James (M'well N)


Cohen, Harry
Hamilton, W. W. (Fife Central)


Coleman, Donald
Hancock, Mr. Michael


Concannon, Rt Hon J. D.
Hardy, Peter


Conlan, Bernard
Harman, Ms Harriet


Cook, Frank (Stockton North)
Harrison, Rt Hon Walter


Cook, Robin F. (Livingston)
Hart, Rt Hon Dame Judith


Corbett, Robin
Hattersley, Rt Hon Roy


Cox, Thomas (Tooting)
Heffer, Eric S.


Craigen, J. M.
Hogg, N. (C'nauld &amp; Kilsyth)


Crowther, Stan
Holland, Stuart (Vauxhall)





Home Robertson, John
Pendry, Tom


Howell, Rt Hon D. (S'heath)
Penhaligon, David


Howells, Geraint
Pike, Peter


Hoyle, Douglas
Powell, Raymond (Ogmore)


Hughes, Robert (Aberdeen N)
Prescott, John


Hughes, Roy (Newport East)
Radice, Giles


Hughes, Sean (Knowsley S)
Randall, Stuart


Hughes, Simon (Southwark)
Rees, Rt Hon M. (Leeds S)


Janner, Hon Greville
Richardson, Ms Jo


John, Brynmor
Roberts, Ernest (Hackney N)


Jones, Barry (Alyn &amp; Deeside)
Robertson, George


Kaufman, Rt Hon Gerald
Robinson, G. (Coventry NW)


Kennedy, Charles
Rogers, Allan


Kilroy-Silk, Robert
Rooker, J. W.


Kinnock, Rt Hon Neil
Ross, Stephen (Isle of Wight)


Kirkwood, Archy
Rowlands, Ted


Lambie, David
Ryman, John


Lamond, James
Sedgemore, Brian


Leadbitter, Ted
Sheerman, Barry


Leighton, Ronald
Sheldon, Rt Hon R.


Lewis, Ron (Carlisle)
Shore, Rt Hon Peter


Lewis, Terence (Worsley)
Short, Ms Clare (Ladywood)


Litherland, Robert
Silkin, Rt Hon J.


Livsey, Richard
Skinner, Dennis


Lloyd, Tony (Stretford)
Smith, C. (Isl'ton S &amp; F'bury)


Lofthouse, Geoffrey
Smith, Rt Hon J. (M'ds e)


Loyden, Edward
Snape, Peter


McCartney, Hugh
Soley, Clive


McDonald, Dr Oonagh
Spearing, Nigel


McGuire, Michael
Steel, Rt Hon David


McKay, Allen (Penistone)
Stott, Roger


Maclennan, Robert
Strang, Gavin


McNamara, Kevin
Straw, Jack


McTaggart, Robert
Thomas, Dafydd (Merioneth)


Madden, Max
Thomas, Dr R. (Carmarthen)


Marek, Dr John
Thompson, J. (Wansbeck)


Marshall, David (Shettleston)
Thorne, Stan (Preston)


Martin, Michael
Torney, Tom


Mason, Rt Hon Roy
Wainwright, R.


Maxton, John
Wallace, James


Maynard, Miss Joan
Wardell, Gareth (Gower)


Meacher, Michael
Wareing, Robert


Meadowcroft, Michael
Weetch, Ken


Michie, William
Welsh, Michael


Mikardo, Ian
White, James


Millan, Rt Hon Bruce
Wigley, Dafydd


Mitchell, Austin (G't Grimsby)
Williams, Rt Hon A.


Morris, Rt Hon A. (W'shawe)
Wilson, Gordon


Morris, Rt Hon J. (Aberavon)
Winnick, David


Nellist, David
Woodall, Alec


Oakes, Rt Hon Gordon
Wrigglesworth, Ian


O'Brien, William
Young, David (Bolton SE)


O'Neill, Martin



Orme, Rt Hon Stanley
Tellers for the Noes:


Park, George
Mr. John McWilliam and


Parry, Robert
Mr. Frank Haynes.


Patchett, Terry

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).

Orders of the Day — BUSINESS OF THE HOUSE

Ordered,

That, at this day's sitting, the Ways and Means Motion may be proceeded with, though opposed, until any hour.—[Mr. Sainsbury.]

Orders of the Day — Financial Services Bill [Money]

Mr. Speaker: The question is the money resolution—

Mr. Walter Harrison: On a point of order, Mr. Speaker. I shouted, "No" when you put the Question on the business of the House. I did so several times, and I had 20 hon. Members to support me. I wished to vote against the business of the House motion.

Mr. Speaker: Order. I have put that question and I have collected the voices, but I shall put again the question on the money resolution.

Question put, and agreed to.

Ordered,
That, for the purposes of any Act resulting from the Financial Services Bill, it is expedient to authorise the payment out of moneys provided by Parliament of any expenses incurred under that Act by the Secretary of State, the Chief Registrar of Friendly Societies and the Registrar of Friendly Societies for Northern Ireland.

Orders of the Day — FINANCIAL SERVICES BILL (WAYS AND MEANS)

Question put,
That, for the purposes of any Act resulting from the Financial Services Bill, it is expedient to authorise the charging of fees and the making of payments into the Consolidated Fund.—[Mr. Sainsbury.]

The House proceeded to a Division—

There being no second teller for the Noes, MR. SPEAKER declared that the Ayes had it.

Orders of the Day — Motor Vehicle Emissions

The Minister for Environment, Countryside and Local Government (Mr. William Waldegrave): I beg to move,
That this House takes note of European Community Document No. 7283/85 on motor vehicle emissions; and supports the conclusions reached at the meetings of the Council of Environment Ministers on 28th June and 28th November 1985.
Just over a year ago—on 4 December 1984—this House debated document 7805/84, published by the European Commission in June of that year. That document contained two draft directives, one on the lead content of petrol, and one on vehicle emissions.
In the second half of 1984, progress on the two directives was made at very different speeds. By the time of the debate in December, we were already close to a substantial agreement on petrol-lead; and as a directive that resulted from a United Kingdom initiative, I am pleased that it was adopted as directive 85/210/EEC by the Council of Ministers last March.
By contrast, it was clear that the draft emissions directive had a long way to go; and, not surprisingly therefore, our debate at the end of 1984 concentrated on petrol-lead. I explained during that debate that we expected to have a further opportunity to debate vehicle emissions once the Commission had brought forward new proposals.
At the beginning of June last year, the Commission brought forward new proposals in the form of a revision of its original draft directive. That revision was contained in document 7283/85, which the House is now considering.
As the House will know, agreement on the framework of a new directive was reached by most environment Ministers later last June, and on various outstanding matters in November. Denmark and Greece maintain general reserves which must be lifted before the directive can be adopted by the Council of Ministers.
Before I describe the main elements of the draft directive as it now stands, in the light of the substantial agreements at the Council it is important for me to put vehicle emissions in some historic perspective. The first legislation on vehicle emissions was directed at carbon monoxide, because of the such possible effects on human health as kerbside concentrations built up under certain conditions. That concern has now much diminished as carbon monoxide levels have fallen in the last 10 to 15 years.
Concern is now focused more on levels of nitrogen oxides and hydrocarbons, which contribute to the formation of secondary atmospheric pollution, such as acid rain and ozone. These pollutants can give rise to environmental damage to buildings and vegetation and to the acidification of freshwaters.
It is estimated that in this country petrol engine vehicles are responsible for about 30 per cent. of national emissions of nitrogen oxides from man-made sources, and about 40 per cent. of the environmentally reactive hydrocarbons.
In approaching the recent negotiations, the Government aimed for a step-by-step approach designed to tighten standards as improving technology allowed us to do so in a cost-effective manner.

Mr. Tony Marlow: My hon. Friend said that the Greeks and the Danes put a reserve on the directive. Since those debates took place, the Spanish and Portuguese have entered the Community. Do they have a reserve, do they have to agree to the directive, or have they already agreed to it? Will it apply to them at the same rate as it applies to other Community countries?

Mr. Waldegrave: Those countries were not legal participants in the decision-taking; they were not part of the process that led to it. They would have to agree to the directive in due course. I shall check this and write to my hon. Friend to confirm it—I think that they have said that they will conform to the directive according to the time scales laid down in it.

Mr. Simon Hughes: Will the Minister confirm that the Danes put a reserve on the directive because they are concerned that it is not environmentally satisfactory? The Greeks did so for a different reason—they have a fundamental concern about the weakness of the directive.

Mr. Waldegrave: As in some other matters, the Danes are pulled two ways, with their overlapping membership of the Scandinavian bloc and of the European Community. They want to go down the same route as the Scandinavians, towards the full American standards. For reasons that I shall describe more fully, we think that that is unnecessary and would be a mistake in industrial and energy conservation terms. They have yet to persuade themselves to join in. I think that it would be fair to say that the leading country in tightening up the standards is Germany, which has accepted the directive.
An important development in the step-by-step, balanced approach was the new fuel-efficient lean burn technology, which various manufacturers, including those in the United Kingdom, had been developing. That technology produces marked reductions in emissions of NO, and CO, and because those reductions result from the intrinsic design of the engine, they will continue throughout the life of the car.
Some member states—and the Scandinavians, as the hon. Member for Southwark and Bermondsey (Mr. Hughes) said—preferred the technology developed in the United States over the 1970s to meet the, in fact, rather different, environmental problems faced, in particular, in urban California. That is the three-way catalytic converter technology, which can achieve, through a combination of engine combustion control and catalyst technology, substantial reductions in emissions of all three primary pollutants—NOx, HC and CO—in test conditions. It was a technology that might make some sense in America, certainly at that time, where cars are larger and fuel is cheaper than in Europe, particularly at a time when there appeared to be no feasible alternative. I pay tribute to Johnson Matthey Chemicals, a British company that has won a substantial share of the world market in those products.

Sir Anthony Grant: I am grateful to my hon. Friend for mentioning Johnson Matthey Chemicals, which is in my constituency. It is a market leader in the production and technology of those catalyst converters, as my hon. Friend will be aware. Is he further aware that it has submitted a document on the subject to the Select Committee on European Legislation?
If my hon. Friend has not seen it, he should take the opportunity to do so, because it is a contribution to the debate. It believes that if the directive is not adopted, cars sold in the United Kingdom will cause more pollution than cars sold in Germany or other European countries.

Mr. Waldegrave: I shall refer to the timescale and the arguments about implementation. Like all such directives, this directive is permissive. It says what countries are allowed to insist on it. It is crucial for what this country and others will do. I shall mention that at the end of my speech. Although we believe, particularly for medium and small cars, that the lean burn route is right, I do not want to belittle the achievement of that company in winning a major share of world markets where the other route has been taken. It is even more difficult for the company as it does not have a home market in the product.
We have always questioned whether three-way catalysts are the best available technology for Europe in the mid-1980s. There are various reasons for that. The first is that our cars tend to be smaller and more economical than in America, so that additional manufacturing and running costs are a more significant part of the total cost for the consumer. The second is that fuel is more expensive.
The third is that bench test results on a new car do not necessarily give a fair reflection of emissions over the total life of a car. Indeed, experience in the United States suggests that the emissions performance of cars with three way catalysts can in practice deteriorate considerably over their life. Fourthly, we now have, in the new lean burn engine, an alternative technology which can, over the life of a car, reduce NOx, probably as well as a three way catalyst, even though it may not do quite so well on the test bench.

Mr. Kenneth Carlisle: I think that everybody accepts that the lean burn engine is a tremendous advance, in that it reduces bad emissions from cars, but does my hon. Friend accept that it does not get rid of hydrocarbons which contribute greatly to ozone in the atmosphere and lead to acid rain? Does he therefore believe that it will be necessary to add to an oxidation catalyst to the lean burn engine in order to deal with hydrocarbons?

Mr. Waldegrave: My hon. Friend is absolutely right. The lean burn engine will reduce NOx, but if further big gains are to be made in relation to hydrocarbons the oxidation catalyst, with the lean burn, is one of the options that we shall have to consider. The oxidation catalyst is much cheaper than the full three-way catalyst.
I turn now to the agreement that was reached in the council last June, which was further amplified in November. This concerns gaseous emissions from all petrol engined vehicles and diesel engined vehicles up to 3·5 tonnes. As I have said, the agreement is not yet complete, because it is still subject to the two general reserves to which reference has already been made.
Like all the directives governing standards, this directive, if adopted, will be a permissive directive enabling member states to apply standards to various categories of vehicles from specified dates in the future, but leaving them free to apply less strict standards if they so choose.
We expect the directive to contain the following specific provisions. For cars above two litres, member

states will be allowed to require emission levels of equivalent severity to those applied in the United States of America by the "federal 1983" standard. The earliest date of any such requirement in Europe will be 1 October 1988 for new type approvals and 1 October 1989 for newly-registered vehicles. Manufacturers will have three options for certifying compliance with these standards. The first is to present results from tests conducted to satisfy United States vehicle test authorities—the straight American test. The second is to meet a replication of the United States test in a European test house. The third is to meet European standards, on the European test cycle, which are estimated to be equivalent to the United States limits on the, different, United States test cycle. The European limit values for this third option would be 25g per test for CO; 6·5g per test for the combined masses of HC and NOx; and 3·5g per test for NOx separately. It seems that at least three member states—Germany, Luxembourg and Denmark—will take advantage of these provisions immediately or in the near future. The cars likely to be sold in those markets will be models based on ones that have been developed for export to the United States of America which are already fitted with the three-way catalyst system. The cost of this system is estimated to be about £500 to £800. There would also be fuel economy penalties of about £250 per annum.
For medium sized cars—1·4 to 2 litres—we expect that a technologically more satisfactory route should be possible in most cases. The standards for these medium sized cars should be achieved by lean burn techniques combined with oxidation catalysts, as my hon. Friend the Member for Lincoln (Mr. Carlisle) said, or by comparable cost-effective techniques. In some cases, however, it may be necessary to use the three way catalyst system. This would mean that costs would be similar to those for large cars. Otherwise we expect the additional costs to be of the order of £125 per car, compared with £500 for the three way catalyst system. The fuel economy savings of the lean burn technology will be largely preserved, as opposed to the penalty under the three way catalyst system.

Mr. Iain Mills: Has my hon. Friend made any allowance for the effect that this would have on the Austin Rover group compared with European manufacturers in the 1·4 to 2 litre category?

Mr. Waldegrave: As my hon. Friend can imagine, we have had very close consultations, through the Department of Trade and Industry, with Austin Rover, whose interest in the medium category has been in the forefront of our minds. Our view is that we have to decide how far we can push Austin Rover perhaps more quickly than it would like to go at a time when it is reestablishing itself in markets and when it is on its way back to success without ginning the risk of fragmenting the European market into several bits. That would have greatly damaged the European Community and the sales of cars throughout the Community, and in the long run that would have affected Austin Rover. I will not disguise the fact from my hon. Friend that I can think that, if Austin Rover had been writing the directive, it would not have been so tight. I believe that the group's future development plans and considerable and growing new technological capacities will be able to meet that need and we have preserved a united European market in which it can compete.

Mr. Teddy Taylor: Is it not the case that, since the directive was drawn up, there has been the problem of many European states imposing sanctions against the Republic of South Africa? Does not the catalytic converter depend on the use of rodium which can be obtained only from the Republic of South Africa? Is the Minister willing to consult his Community partners to find out how on earth governments are to introduce these converters depending on rodium when, under the law, they are not allowed to obtain rodium from South Africa?

Mr. Waldegrave: Platinum and rodium are indeed two of the important metals involved in the catalytic converter, but I believe that there are alternatives. We have always maintained that we will not impose three-way catalytic converter technology. That is not a problem for us in the immediate future, but my hon. Friend has made a fair point, although it is not perhaps of immediate relevance to the debate. It is true that the supply of these rare minerals that come from the southern part of Africa rely on the stability of that region and that applies to other goods.

Mr. Taylor: In view of that, will the Minister assure the House that he will consult his Community partners to ascertain whether, within their laws, they are still able to implement the directive?

Mr. Waldegrave: With respect to my hon. Friend, if a Community member chose to implement a directive which was not compulsory but permissive, and found that it could not obtain the materials to implement that directive, that would be a problem for the Community member and not for me. There are some other sources of rodium, but my hon. Friend's point is interesting and important and it might help my hon. Friend if I looked into the sources of rodium and wrote to him about that.

Mr. Tam Dalyell: There are other sources of rodium—in Zaire, Brazil and Peru.

Mr. Waldegrave: The hon. Member for Linlithgow (Mr. Dalyell) is likely to be well informed on these matters, and I am grateful for his information.
I was discussing medium-sized cars. There is some penalty in the capital cost of the car with the lean burn route. Engine development is slightly more expensive. It will, however, retain fuel economy.
The limits for medium cars would be 30 g/test for CO; and 8 g/test for HC+NO combined. There will be no separate limit for NOx. The earliest application dates for this standard would be 1 October 1991 for new type approvals and 1 October 1993 for all new registrations. Generally, a single path of engine development should serve both for countries which decide fully to apply the standards and for those which do not.

Mr. Marlow: My hon. Friend mentioned the possible position of Austin Rover and said that this is permissive legislation. In other words, countries can apply it as and when they feel that it is appropriate to do so. If it were to help Austin Rover for the Government to be slightly more permissive than other Community Governments, would my hon. Friend consider that course?

Mr. Waldegrave: There are two or more items to balance in coming to that decision. There is the interest of the United Kingdom's environment and the motor industry as a whole. It is noticeable, for example, that Ford has recently made a large investment in this country in lean

burn engine technology, aimed at the large market in the European Community as well as the British market. When we come to decide when we should implement these proposals, we will have to balance these matters. Of course, as in the past, the interests of the British motor industry will be close to our hearts when we come to make that decision.
For small cars of up to 1·4 litres, the agreement would provide for the Commission's stage I limits to be applied to new type approvals from October 1990 and for new registrations from October 1991. These limits are 45 g/test for CO, 15 g/test for HC plus NOx and 6 g/test for NOx. That standard would be tightened two years later—the tighter standard to be worked out over the next two years for an amendment to the directive to be made in 1987. No particular technology or other conditions are specified as regards this tighter standard.
Although not part of the Commission's proposals, the June agreement also confirmed that member states that so wished could offer fiscal incentives for purchasers of cars that achieve lower emissions than those prescribed in the present directive. However, in doing so, the Council laid down a set of conditions for the incentives which limit their value.
At its meeting on 28 November, the last meeting, the Council considered a number of important outstanding questions. First, there was the question of dates from which member states might require new cars to be capable of running on unleaded petrol. That is a necessary counterpart to the directive to which I referred earlier about the supply of unleaded petrol. The Government wanted as early a date as possible for this facility, but some other member states and the Commission preferred a more relaxed timetable. Because of its composition, that would have meant 1993 for most of the United Kingdom car fleet. In the end, the dates were settled as 1 October 1988 for new models above 2000 cc; 1 October 1989 for-the type approval of new models below 2 litres; and 1 October 1990 for the registration of all new cars, unless the manufacturer can certify that major re-engineering would be involved. That was a good outcome for the United Kingdom.

Mr. Dalyell: The hon. Gentleman mentioned fiscal incentives. What do the Government have in mind? Will they be significant or token incentives?

Mr. Waldegrave: The fiscal incentives to which I referred, which were delineated and limited in the June agreement, were the incentives offered primarily by the Germans against the capital costs of low-polluting cars.
As regards the introduction of lead-free petrol, which is perhaps what the hon. Gentleman has in mind, we recently issued a discussion paper that included the option of different tax treatments for different types of petrol. We are assessing the various comments made on that document, but I cannot yet give the hon. Gentleman our decision. The American experience was that incentives had to be large to be worthwhile, because of fluctuations in the price of petrol.

Mr. Iain Mills: Has my hon. Friend made an estimate of the effect on Austin Rover of a fiscal incentive to use lead-free petrol in the A-series engine, compared with other models, particularly imported models which do not have the same problems in the combustion of the engine?

Mr. Waldegrave: I understand that the principal problem with lead-free petrol is not so much combustion


as whether valve seats are hardened, because lead is the lubricant of the valves as well as an octane booster. Before reaching a decision on whether to use fiscal incentives—we have traditionally been wary of that; we have not had fiscal incentives for the use of diesel—all these matters will have to be considered.
As I said, the agreement on dates was a good outcome for the United Kingdom. We wanted a single, early date and we got a spread, but that is three or four years earlier than France, the Commission and others asked for.
A second question resolved in November was the treatment of cars equipped with direct-injection diesel engines. That is a new, fuel-efficient technology being developed principally, I say with some pride, in Britain by two British companies, Austin Rover and Perkins, which are well in advance of their continental competitors.
Although the June agreement recognised the special characteristics of large diesels by allowing them to meet the limit values for medium-sized cars, the question of the new direct-injection diesels had been left unresolved. It was agreed in November that such engines would not have to meet the new limits until October 1994 for new type approvals and October 1996 for new registrations. This represents a generally satisfactory outcome with regard to the direct injection diesel being developed by Austin Rover and Perkins.
The Council meeting in November also agreed correction factors to ensure that a car with an automatic or continuously variable transmission system should not be penalised in comparison with the equivalent manual transmission version with the same pollution control equipment. It also agreed application dates for new standards for utility vehicles of 1 October 1989 for new type approvals and 1 October 1990 for new registrations. These standards will be less stringent than those for passenger vehicles. The definition of off-road vehicles, which comes within this category, was agreed to include all Land-Rover models, obviously a point of particular importance to us. Finally, the Council settled various outstanding technical criteria for assessing the European equivalent of the United States test for large and medium cars.
That is the basic content of the directive as it now stands. If it is adopted, it will be, as I have said, a permissive directive. That brings me to the question of implementation. I have already explained how emission controls in this country have gradually developed as technology advances have pushed forward the definition of what is cost-effective. These have now brought us to the lean burn engine which, as I have said, promises both emission reductions and fuel savings. The Government wish to encourage this development, and therefore have no intention to impose standards in this country that would require manufacturers to use expensive three-way catalyst technology instead. We shall, of course, keep the situation under review.
It is worth remembering the progress that has been made. As recently as 1970, which is not all that long ago, the first European Community directive review allowed 134 grammes per cycle of carbon monoxide. We are now down to 30. In 1978 controls in Britain produced for medium cars something of the order of 12 grammes per test for NO. This directive would halve that, divide that by two again. Therefore, progress has been steady. That has to be related to what can be reasonably cost effectively

done by technology. That is why we keep the situation under review and proceed in what we hope is a fairly steady way forward.
Our understanding of the environmental effects of atmospheric pollution, and the contribution of vehicle emissions, is increasing all the time. We will have the opportunity to see just how manufacturers succeed in developing more cost-effective technology. I have no doubt that it will be possible in due course to introduce substantially improved standards in the United Kingdom for vehicle emissions without incurring the severe economic penalties and market distortions involved in the policies being followed by some other countries.
In the meantime, work is continuing on other fronts. The Commission is shortly to bring forward proposals for a standard for particulate emissions, particularly from heavy lorries, as far as possible consistent with cost effectiveness, and I hope that we can make progress on this in the Community in the corning months. The Commission is also expected shortly to bring forward proposals for gaseous emission controls on vehicles over 3·5 tonnes. By the end of 1987 we should have proposals for a revised European test cycle; and for the second stage limits for small cars.
The draft directive we are considering tonight will not, therefore, be the last word on vehicle emissions control. There will be further important measures in the next few years. In the meantime the directive, if adopted, will mark an important advance in Community legislation in this field. It would maintain the integrity of the internal market while acknowledging that, because the environmental effects of vehicle emissions vary from country to country, there may be some differences in requirements between member states. I commend the document to the House.

Dr. David Clark: We are discussing an issue which is highly technical and complicated, but important for the public health of the country, for the environment and for our motor car industry. On a number of key issues, the Minister was not as forthcoming as he usually is when he tries to explain rather complicated issues to the House. I felt he kept us on a string. He kept saying, "I will say a word about implementation and I will come to that at the end." When he came back to it, all he said was that the Government were not going to go along the route of the three-way catalytic converter. We knew that when we started: that was about the only thing we did know. A lot of questioning must be done this evening, because we want some assurances and some clarification from the Government.
As the Minister has said, these directives do not directly relate to lead. The elimination of lead in petrol is a prerequisite for the directives. Unless we get lead-free petrol, we cannot pursue the other courses.
I ask the Minister to be more forthcoming. He said that he had consulted widely. The environmental and other groups have appreciated the consultation on the implementation of the lead-free petrol regime. The hon. Gentleman has said that he is not yet ready. When will he be ready? In what form does he intend to respond to the questionnaires that he sent out?
It is worth re-emphasising that these proposals for emission standards are part of three inter-related directives. The first is that lead-free petrol should be available in 1989, and we all approve of that. Secondly,


all new models at that time must be able to run on lead-free petrol. However, it is one thing to say that cars will be required to be able to run on lead-free petrol, but will they be required to run on lead-free petrol? Unless there is sufficient demand, the oil industry will be reluctant to install capital equipment to maintain the supply of lead-free petrol. That is a crucial point. Thirdly, there are emission controls.
It is worth while shouting loudly and clearly that, whereas the first directive—the introduction of lead-free petrol by 1989—is mandatory, the other two are permissive. If this or any other EEC Government wish to do nothing about emission controls, they have the licence to do so under these directives. The directives merely lay down the maximum standards that any country can apply.
A number of fundamental questions arise. The first one is a $64,000 question which the Minister must answer tonight. Will the Government adopt these permissive directives? If they will not, we are wasting our time discussing them. How will the Government adopt them? The two questions are connected. If the methods of implementing the directives are not correct, it is irrelevant even to talk about implementation.
As I am not in any way suspicious, I naturally assume that the Government entered into the negotiations with our EEC partners in good will and honest intent. The Minister has pleaded his case for lower standards with great sincerity. Such was the line of argument that he successfully deployed at the negotiating table that he persuaded most of our allies—excluding in particular the Danes—to follow. Our neighbours agreed to reduce the standards. We should remember that these were maximum standards. Our neighbours, which face much more environmental tree damage than we do—especially Germany—agreed to make the sacrifice because they believed that they would get Britain's cooperation and compliance. I believe that many of them are beginning to mutter the words "Perfidious Albion", because it is clear that the British Government have no intention of implementing these directives. In essence, the Minister blatantly conned his ministerial colleagues when he persuaded them to accept lower standards.

Mr. Waldegrave: The hon. Gentleman uses strong words about negotiating in bad faith. I believe that no one in the negotiating chamber is under the slightest doubt that this is a permissive directive. That is a misunderstanding thought up by some outside commentators who do not understand that the directives now, as under the Labour Government, have been permissive. They have always been carried out in the same way. I wholly reject the hon. Gentleman's serious accusation.

Dr. Clark: I am not questioning the rights or wrongs of European legislation, as to whether it should be mandatory or permissive. There are two types of regulations and directives, and I accept the tradition, the convention and the law. The point that I am making is that these directives are permissive. If they are permissive, therefore, we on the Opposition Benches are required to ask if the Government are going to adopt them. That is the whole point that I am making.
One might wonder why the other countries should think in this way. As the Minister has explained, the antecedents of these directives can be traced as far back as 1972, in our

own case, but, in particular, the detailed negotiations on the set which we have before us tonight go back, basically, for the past 12 months. They were discussed in great detail last March. If we look at the Government stance on the method of trying to tackle the problem, we see variants.
On 23 March, in a letter to The Guardian, the Minister wrote:
we would like to see the lean burn technology combined with a simple oxidation catalyst.
That seemed a very sensible approach because here we had the benefit of a new technology, with a lot of British input. Ford UK were very much to the fore in this, introducing a new generation of engines which were much more economical in fuel and much more efficient in the way in which they used it. As the Minister knows, Ford is now slowly going into the third generation of lean burn engine with considerable success. So we all applauded the Minister when he made that statement.
However, of course, things change. I suspect that the Department of Transport had some influence on the Department of the Environment and, of course, the Department of Transport has not got the best environmental record in this Government. We then find that in a statement in the other place the Government Minister, Lord Brabazon, said:
the Government do not intend to impose standards on vehicles sold or used in this country which would require manufacturers to use catalyst technology."—[Official Report, House of Lords, 22 April 1985; Vol. 462, c. 972.]
So here we have the Minister in the Lords saying, "We are just going down the lean burn route and we are not going to have any catalysts involved." That is a step back because there are great dangers in following that particular route.

Mr. Roger King: I note the point that the hon. Gentleman has just made, but does he not appreciate that companies which manufacture cars in this country—Austin Rover principally—in fact sell their cars to mainland Europe—Germany, France, Italy and elsewhere—and whatever the standard is in that country their product, manufactured here, has to meet the highest standards in the European market?

Dr. Clark: That is the very point that the Europeans are now making. We have lower standards in their countries, at a sacrifice to their environment and their public health, in the hope that we can make minor adaptations—one can easily add the oxidation catalyst, and it would cost only about £100, to any standard lean burn engine, and it would meet the lower standards which we persuaded our colleagues to accept. The point that the hon. Gentleman makes is very akin to the point made by our neighbours in the EEC.
If I might just develop this thesis of the Government going backwards a stage further, in a letter dated 12 July to Dr. Russell Jones of the Clear the Minister does one of his graceful shuffles again.
We have at present no intention to set a standard which would require the use of oxidation catalysts.
That was the Government's position in July. It was a case of will-she won't-she. We have the right to know what the Government will do. Are they in favour of the lean-burn engine plus the oxidation catalyst? If so, we shall support them. If they opt for the lean-burn engine without the oxidation catalyst, we must take issue with them.
As the hon. Member for Lincoln (Mr. Carlisle) has already pointed out to the Minister, there are great dangers


involved in having the lean-burn engine without the oxidation catalyst. Unless the Minister changes the Government's approach as he has described it, he will cause greater damage to our environment and public health than if we did not change course. The lean-burn engine reduces oxides in nitrogen, and carbon monoxide, but the Atomic Energy Authority at Harwell has shown that a constant ratio of hydrocarbons with reduced nitrous oxide and reduced carbon monoxide increases the level of ozone, which has largely been causing the damage to vegetation in Europe. Hydrocarbons contain elements which are counter inducive, and many people in public health are greatly worried about the Government's apparent choice.

Mr. Iain Mills: Is the hon. Gentleman aware of the effect on jobs at Austin Rover of the policy that he suggests? Is he suggesting that the oxidation catalyst is the answer? Is he prepared to sacrifice jobs at the altar of the environment?

Dr. Clark: It is clear that the hon. Gentleman has not understood what his Minister has proposed. Austin Rover will have to retool and introduce lean-burn engines. When it introduced lead-free petrol the cost of an oxidation catalyst was minimal.

Mr. Mills: £100?

Dr. Clark: Thereabouts, and on mass production the cost would be even less. Let us not quibble about that. The Minister has already acknowledged that those catalysts can be and are made efficiently in the United Kingdom by Johnson Matthey Chemicals, which is a progressive company. One of its disadvantages is that it has no home market. If it had, it could be more effective in the export market. There will be changes and they must be negotiated. Discussions must be held with Ford and Austin Rover. Those companies must change their engines because of the requirement to have lead-free petrol, and at the same time they must introduce a form of lean-burn engine. Indeed, they are working towards it now. The job implications of that are not on the scale that the hon. Gentleman suggests.
The Government have been and are acting irresponsibly. They should consider our neighbours, and if they are not prepared to do that, they should consider our people. Unless they are prepared to make the directives operative, we shall damage our environment, the British motor car industry, and the health of the British people. We expect answers from the Minister later this evening.

Mr. Peter Griffiths: I welcome this debate. I say that to start with because there is little else favourable to say about my hon. Friend the Minister's speech or the Government's approach to the problem.
The Government demonstrated an evident lack of enthusiasm in their approach to atmospheric pollution caused by motor vehicles. Whether pollution has been caused by lead in petrol, hydrocarbons or nitrogen compounds, they have always had to delay and find a more cost-effective solution and to reject immediately available solutions. The hon. Member for South Shields (Dr. Clark) was asked whether jobs should be sacrificed to environmental considerations. I would be prepared to accept such job losses in inefficient industries if the result was clean air.
I was one of the few hon. Members who criticised last night's proposals concerning seat belts. I objected to motorists being nannied into doing something that was said to be for their own good. I said that I strongly believe that anyone who has the privilege of motoring should recognise that he is having an effect on the environment. I see every reason why the Government should grasp the nettle of environmental protection. If that means that some firms are unable to meet such considerations, they. not the environmental needs of the people, are to blame.

Mr. Iain Mills: The real conflict is not between the environment and the motor car but arises from the fact that these directives would disadvantage our manufacturers. Others have engines that are more well developed along the proposed lines. The oxidisation catalyst will disadvantage our manufacturers. Jobs will be lost, not because of any conflict between cars and the environment but because Europeans have better developed engines.

Mr. Griffiths: My hon. Friend shows that we agree about the circumstances and disagree about the solution. I lived in Los Angeles some years ago, before attempts were made to reduce environmental pollution there. I have been back occasionally and seen the amazing results of their efforts. Regulations in California are far more rigid than in the rest of the United States and than those that we can hope to enjoy. The average motor car lasts rather more than 11 years, so it will be many years before we enjoy fresh air.
We did not fail to develop the catalytic converter, but we failed to use it. That is a tragedy. The technology was available at the beginning of the 1970s. It could and should have been used to prevent the untold damage to the environment that has taken place since.
I think it is unfair of the Minister to say that there is a problem in this country when one of his arguments is that the cost of petrol in this country is greater than it is in the United States. In fact, it is not to do with the cost of petrol but with the amount of taxation levied on petrol. Given that the motorist is so heavily taxed, it would surely be possible for us to look for the kind of fiscal incentives to which my hon. Friend referred. There will not be a movement towards the use of modern technology, be it catalytic converters or lean burn engines, unless there is some clear and obvious advantage to the motorist purchasing a new vehicle. We should be considering ways in which to persuade people to use lead-free petrol and to exchange their current types of vehicles for vehicles that have more efficient engines or are fitted with protective devices. These are essentials for the future. The Government should be addressing these problems urgently with a view to ascertaining the solutions.
I have indicated that I am not very happy with what is happening. I believe that we have an opportunity now to bring together the interests of the motorist, the motor manufacturers and the public at large. We have to make use of the technology of today without delay.
If I may return to the California example, to which I have referred, it was suggested that very few foreign manufacturers would be able to sell motor cars in California if the Californian regulations were introduced. Although certain models have been withdrawn, one notes that a large number of vehicles across the range of motor manufacturers have joined the American models on the streets.
Whatever regulations we have in this country will be applied not only to British motor manufacturers but to anybody who wishes to sell in this country. In this country there should be the highest levels of requirement in the protection of the enrivonment and of the air that we all breathe. If that implies costs for the motorist—and I yield to nobody in my support for motoring and the motorist—I would be prepared to pay. I believe we owe that to the people who are not motorists. They have a perfect right to say to those of us who are motorists that we have no right to poison the environment.
It is the job of Government to give an active, positive and a direct lead. We have not had that tonight or, indeed, for many years. It is about time this country set a lead in Europe by demanding higher standards rather than dragging its feet and hoping that other countries will set the pace while we grudgingly accept something less than that which we know is achievable and which could be achieved in a short period of time if we had the will and the determination.

Mr. Simon Hughes: The hon. Member for Portsmouth, North (Mr. Griffiths) has hit the nail on the head. Despite the Minister's long technological introduction, we shall be seen as being incapable of doing anything about our own backyard and as the dirty men and women of Europe. The truth is that the Minister knows that, on the matter of emissions from vehicles, his right hon. and hon. Friends from the Department of Transport have won the day and the green image of the Government is absent on this issue. The environmental consequence of what has been said tonight is that we have spent years negotiating something that we have no intention of implementing. We are going to do nothing about it—that is what the Minister said.
This is a permissive directive which we have made as harmless as possible by the process of negotiation, and we shall not implement it, anyway. It is bad news if British industry and British motor manufacturers believe that they are helping themselves by defending polluting vehicles and claiming that they are satisfactory. If we had been sufficiently far-sighted 10 years ago—

Mr. Iain Mills: Will the hon. Gentleman give way?

Mr. Hughes: I shall give way in a moment. It is clear that in this debate the hon. Gentleman speaks for Austin-Rover. He has made his point. He speaks for the motor industry, his constituency, jobs in his constituency and votes. I understand his position.

Mr. Mills: What does the hon. Gentleman speak for?

Mr. Hughes: I speak for the environment on this issue. I speak also for those in inner cities who are polluted day after day by vehicle emissions. If we had had the foresight 10 years ago—

Mr. David Lightbown: Will the hon. Gentleman give way?

Mr. Hughes: I shall not give way for a moment. If we had had the foresight 10 years ago to anticipate the technology that we would need to ensure pollution-free motoring, we could have made greater advances towards it. I am not the only one to say that℄

Mr. Mills: rose—

Mr. Hughes: For example, the Select Committee in another place, which considered these issues in February 1985, said much the same thing, as the Minister well knows. It said in paragraphs 72, 73, 74, 75, 76 and 77 that it was not satisfactory to wait for lean burn technology to make the necessary progress. We must introduce deadlines and we must abide by them. If we do not, the motor industry will drag its feet. It will say that what we want cannot be achieved.

Mr. Mills: Will the hon. Gentleman give way for a short intervention?

Mr. Hughes: I shall give way in a moment, but I remind the hon. Gentleman that he has intervened on several occasions already. The Minister took 25 minutes to describe the directive and only one minute to say that it would not be implemented. There should be an opportunity for those who are concerned about the environment to say that we have been presented with a somthing-and-nothing document. The Government have made a something-and-nothing decision and it would be deceptive if the Minister were to pretend that progress had been made.
The hon. Member for South Shields (Dr. Clark) was correct when he said in answer to a question about the export of motor cars that we shall not have any motor cars to export if the Germans for example, apply the directive and we do not. Our motor manufacturers will not have anything to export that complies with the directive if it is implemented abroad. Alternatively, they will have to manufacture vehicles for the mainland market—

Mr. Lightbown: Will the hon. Gentleman give way?

Mr. Hughes: I ask the hon. Gentleman to listen for a moment. They will have to make vehicles for abroad that are unlike those that pollute our own streets. In other words, better vehicles will be exported than those that are sold on the home market.
I have told the the hon. Member for Meriden (Mr. Mills) that I would allow him to intervene, and I shall let him do so once during my speech. I have a few more critical comments to make before I conclude my remarks.

Mr. Mills: At Gaydon in the west midlands, Austin Rover has spent millions of pounds over the past few years on computer facilities to try to analyse and understand exhaust emissions and to enable its cars to cope well with exhaust emission regulations. It has spent millions of pounds trying to understand how to make its cars more clean in terms in emission, more acceptable and better for the environment. That money has not been spent on customers or promotion.

Mr. Hughes: I do not doubt that for a moment. However, if the hon. Gentleman thinks that it is not worth charging the consumer another £50, £60 or £100 to have a pollution-free environment, he is wrong. If we continue to pollute the environment, the countryside into which people now drive for enjoyment will not be there to be seen. That is in addition to the damage that we are doing abroad. I have much in mind the acid rain that we are adding to by failing to control vehicle emissions.

Mr. Lightbown: rose—

Mr. Hughes: No, I shall not give way. The pollution that we are creating will result in a legacy of


environmental destruction, and those who ride in cars want to enjoy the environment as much as anyone else. The polluter should pay. If I, as a motorist, the hon. Member for Meriden or any other Member who is a motorist, pollute the environment when the necessary technology is available in the form of converters and the development of lean-burn engines we should pay for the damage that ensues. We should pay all that we need to ensure that that damage does not ensue. If that increases the prices of vehicles by another £50, it is pretty good value. I do not mind paying that increase and I hope that Conservative Members do not either. I do not think that the majority of people in Britain would object to paying that increased price. Indeed, I recollect that opinion poll evidence tells us that the public are prepared to pay more for their vehicles if the increased price meant reduced pollution.

Mr. Waldegrave: Is it the policy of the hon. Gentleman's party to insist on full United States standards with three-way catalysts for all cars?

Mr. Hughes: We would implement the directive and make sure that it was effective here. As for small vehicles, the Government have given no undertaking. We would make sure that stage two was implemented and the timetable agreed in two years. As yet there is no evidence to show that the Government are likely to abide by that. We also believe that it is appropriate to combine a lean burn engine development with a converter for medium-sized engines. That is the way to proceed. We should not wait for the lean burn engine technology to develop to deal wth the problem alone.

Mr. Waldegrave: The hon. Gentleman has been helpful. After all the sound and fury, what he is saying is that he also would have negotiated against the Germans for the standards that I brought back. I am most grateful to him.

Mr. Hughes: The Minister misrepresents the position. That is not what I said. We are used to misrepresentation from the Government Front Bench. [Interruption.] Conservative Members should not laugh; they should treat the matter more seriously. We would have negotiated a directive that we would have been prepared to implement rather than argue about. We would have made sure that we complied with a timetable that meant that by the end of the decade there was no pollution that could not be controlled either by converters or by lean burn engines.

Mr. Lightbown: rose—

Mr. Hughes: I will not give to the hon. Gentleman. He has made sedentary interventions.
We know the position. The Department of Transport has forecast an enormous increase in vehicles by the end of the century; I think the forecast is 25 to 50 per cent., of which the majority will be small vehicles. It is important that implementation of emission controls for small vehicles is carried through urgently so that it is not just medium-sized vehicles that are the beneficiaries of any action that the Government assist them to take. I challenge the Minister to tell us also in his reply whether the Government intend to implement the directive for vehicles over 2 litres. Will he say clearly whether he is in favour of using converters, if necessary, in medium-sized vehicles so that a combination of the two technologies may mitigate pollution?
The Minister came to the House with one good point and one lousy point. I compliment him on negotiating a satisfactory timetable for the provision of lead-free petrol in Britain. I do not want to detract from that announcement. The timetable is good. No one could be substantially critical, although we might argue that it could have been done a couple of years earlier. My party believes it could have been done by 1987 but the negotiated agreement is acceptable.
Surely, however, the Minister cannot take pride in pretending that the agreement on vehicle emissions is satisfactory. I ask him to go back to his colleagues in the Department and try again to win the argument for the environment and not for the polluters. When he spends so long negotiating with our colleagues in Europe he should do so with the intention of implementing the results of the negotiations.

Mr. Roger King: The motor industry as represented in this country by elements which can still be described as British is capable of meeting the European requirements on exhaust emissions. The question we have to ask ourselves is whether those requirements as met by known technology will fulfil what we seek—a cleaner environment. If an enormous amount of time and money is spent on research to develop lean burn engines, the fitting of catalysts of any kind is like putting a belt on one's trouasers when one is wearing braces.
Experience shows that catalysts are not efficient. In America, tests were recently carried out in Los Angeles on cars fitted with catalytic converters, which showed that in well over half the cars that were examined, they did not operate. The problem with such exhaust controls is that, when they do not work, the car pollutes far more than it would have done had such a system not been installed in the first place. Whether these are three-way systems or single systems, their life expectancy is no more than three to four years. Quite apart from that, there is the cost of the raw materials and the fact that the sole supplier of it is South Africa. The alliance would not trade a bean with South Africa, but it is conceding a business worth billions of pounds a year to that country by demanding the fitting of these converters. They are also open to tampering and polluting by the user.
More to the point is to look at the way that the catalyst operates. It works properly only at a temperature of about 600 to 800 deg C. The European test cycle was designed to test the catalysts at a temperature of between 350 and 400 deg C. Therefore, they are not working properly. Even worse, when traffic is being used in a city environment, the catalyst hardly works at all because the engine temperature does not get to the temperature required to trigger the catalytic operation. The end result is that the atmosphere is poisoned even worse than it would have been if the darn thing had not: been fitted in the first place.
Lean burn must be the only realistic answer for Europe's travel. If, during the course of the negotiations, we had been able to achieve a level of hydrocarbons plus nitrous oxide levels of 9·5g instead of the 8g at which we eventually arrived, it would be possible for Europe to have concentrated its efforts on pure, lean burn engine technology, and, because of the improvements in fuel efficiency—about 30 per cent. over the cars of just a few years ago—the amount of energy that we would be


consuming would go a great deal further. That must concern every environmentalist because energy is a finite resource.
There is no point in developing expensive lean burn if one still has to use a catalyst. That is a deterrent to manufacturers because, to pass European requirements, they have only to stuff the car's exhaust system with filters—never mind how the engine performs. That is the cheap, easy way out, and a fuel inefficient way to do it.
I have one complimentary remark for my hon. Friend the Minister. Thanks to his negotiating staff and that of his colleagues, he has been able to get an extended life for the direct-injection diesel before it has to reach certain emission standards. I am sure that the British manufacturers, and certainly Austin-Rover and Perkins, are grateful for that. However, one thing which that engine does not enjoy which the rival German product does is a fiscal incentive. This is a disadvantage for our engine, and one hopes that this matter can be looked at.
We all want to see a more clean and tidy environment, but not at any cost—not at the cost of dredging up yesteryear's ideas on how to clean up exhaust emissions, which have been proved to be useless, or partly useless in America, where the technology has been found to be badly wanting. We should use the latest engineering technology, the latest advances by scientists and engineers in engine management systems, the design of engines and the way that they are constructed to tackle the real problem of pollution. At the same time, we must tackle the efficiency of the engine in terms of reduction in fuel consumption, which is another concern to which Europe must address itself in its fight to protect the planet's resources. If at some stage we have to compromise, let us compromise on workable technological answers and not on developments that have proved to be wanting.
Eventually, in order for us to have a universal European category or series of requirements, what my hon. Friend the Minister has told us will probably stand. I am sure that the British manufacturers will be able to meet the requirement. But they will meet it at a cost to the individual. It has been estimated that the measure will cost Britain £1 billion a year, and in Europe as a whole the cost will be huge. That cost will be passed on to the motorist. It is all very well to say that we should be prepared to pay a price to clean up the environment. If the system works, all well and good, but people will object to paying £1 billion a year for a system over which hangs many question marks.
Hon. Members with cars in the underground car park may care to reflect that they may shortly have to spend perhaps £500 to replace the exhaust systems on their vehicles. We are speaking tonight of a cost that should not be lightly dismissed.

Mr. Iain Mills: The hon. Member for Southwark and Bermondsey (Mr. Hughes) said that I might have been a spokesman for the Austin-Rover group. My only interest in that group is that it supplies jobs for my constituents, as it does to the constituents of some of my hon. Friends. Having worked in the car components industry for about 20 years, I can claim to have quite an interest in the subject.
I congratulate the Minister on taking a bold stance, one that has taken his Department and this party a long way to achieving what many people thought the Conservative party would never achieve in terms of the greens, the ecology groups, and all concerned with looking after the environment. The Minister has gone a long way towards recognising that the people of Europe, and particularly of Britain, want the environment to protected from, among other things, lead in the air and in water.
This important matter should not be dismissed lightly. Nor should the technicalities of how we achieve it be dismissed without much consideration, especially as there is a balance between jobs and the environment. Our car industry has social responsibilities. It recognises that in providing jobs and building motor cars, it must accommodate into those vehicles the technical facilities that will allow the cars to operate without polluting the atmosphere.
For that reason, the motives of the industry are not to be denied. Simply from the point of view of marketing, the industry is keen to make its cars less environmentally polluting. It wants to make our cars better than those of the Germans, the French and the Italians so that they will appeal to people who want cars that do not pollute the atmosphere.
How is that to be achieved? Those with some engineering knowledge appreciate that this is a complex matter. While I approve of what the Minister has achieved, I have some reservations and questions. In particular I have reservations about the category of 1·4 to 2 litre cars. It has been agreed that smaller cars can function on lean burn.
As an engineer—I used to make my living on the drawing board, so I understand the way in which pans, computers and technology can design engines, tyres and other components—I assure the Minister that it is strongly felt in the industry that vehicles of 1·4 to 2 litres could have achieved the right levels by lean burn. But the levels that have been agreed for certain contents of some substances will not allow lean burn to be the solution for engines in the 1·4 to 2 litre category.
In that category, we shall face at least single point fuel injection, electronic ignition and secondary air. Some models may need no catalyst, but, in the extreme, a three-way catalyst may be needed. I agree that, in terms of those who make the catalysts, some jobs may be created, but a serious problem will exist for higher-volume new cars.
I refer to the Minister's brief, sent to the all-party motor industry group. Some of us saw my hon. Friend. The incremental costs for 1·4 to 2 litre cars are associated with the oxidation catalyst and additional controls, and could be in the range of £100 to £150. We have discussed that tonight. If a three-way catalyst is required for that category of cars, the costs could be as much as £800 to £1,000. If that could have been done by lean burn technology, it should have been. Jobs and the environment would have been protected. That would have been a far better solution for British and European car manufacturers. I should be grateful for the Minister's response to that. There will be an effect on the Austin-Rover group and on Ford, which I do not speak for, as I do not represent Dagenham. I represent the midlands, and many of my constituents work for Austin-Rover, so I had to make that point.
I should be grateful for my hon. Friend's comments on whether the Chancellor can be persuaded, in view of the 1·4 to 2 litre categories, which are assuming such great


importance in the debate, to allow the tax benefits and tax costs that accrue from the benefit of having a company car to be brought in line. That would be of great benefit to our domestic car manufacturers. Many would benefit if the tax bracket was lifted to 1·4 and 2 litre cars, in line with the 1·3 litre category. I notice that at least one significant newspaper today has mentioned speculation about this. If my hon. Friend cannot give an answer tonight, I ask him to bear that in mind.
A period is needed for adjustment. However much we might want to see the environmental benefits from the moves that we are making, no less a period than three years will be needed for engineering and the huge and long processes from drawing board to reality. There is speculation that a fiscal advantage of a 16p reduction might be considered for lead-free fuel. The Minister should bear it in mind that some domestic manufacturers may find that a disadvantage. If such a fiscal incentive is offered for the use of lead-free fuel, there should be a time scale allowing domestic manufacturers to accommodate it.
I congratulate my hon. Friend on his stances, not just on the motor car, but on other environmental matters. I urge him forward to greater progress in protecting the environment in a practical way.

Mr. Waldegrave: I am grateful to my hon. Friend the Member for Meriden (Mr. Mills) for his final and opening remarks. They made a fitting end to the debate because they explained the unusual and increasing vigour, to put it politely, that we see from the various Opposition parties when the subject of the environment comes up. Perhaps they feel that they have to begin attacking the Government when, perhaps, we are doing better than they would like.
The worst speech of the evening—I say this with respect to him because he often makes very good speeches and baits me on the Floor of the Chamber—was that of the hon. Member for Southwark and Bermondsey (Mr. Hughes). His attack would have been logical if he had said that he and his party stand for the tighter controls for which some of the Scandinavian countries, the Californians and the Germans are pressing. But he did not say that. He said that we should have the lean burn engine and the oxidation catalyst. That has now been negotiated. However, we in this country now have to balance the industrial and environmental advantages that were advocated so vigorously by my hon. Friend the Member for Portsmouth, North (Mr. Griffiths) and decide when we shall implement the directive. The hon. Member for South Shields (Dr. Clark) pressed me to get on with it and to write to him by next Tuesday and tell him when we shall implement it. I cannot yet do so, but that is the next decision for us to make.
These directives are aimed at delineating what can be done without breaking up the European market. There was a real risk that the European motor car market would be broken up, and that would have been very costly for the consumer. My hon. Friend the Member for Portsmouth, North would rightly have been very cross with us, because he has vigorously pursued the case for the consumer. However, he has paid scant attention to the realities of the industrial structure. Viscount Davignon, the former Industry Commissioner, made a formidable remark before he retired. Of the German proposals to provide fiscal incentives for those cars that cause little pollution, he said that it was the first time that a European country had

introduced proposals that would directly subsidise Japanese industry. We must take into account such considerations.
My hon. Friends represent hundreds of thousands—indeed, millions—of people who are employed in the steel industry and in the component industries, and their interests must be balanced with those of the environmentalists. My hon. Friend the Member for Portsmouth, North said that untold damage had been caused to the environment of the United Kingdom because the three-way catalyst was not introduced in the early 1970s. That damage is certainly untold because it has not been told to me. I do not believe that the damage to the environment of this country that has been caused by failing to introduce the three-way catalyst in the early 1970s can be measured.
The hon. Member for South Shields quite fairly put the point that several European countries are facing severe air pollution problems. They have the continental atmospheric conditions that produce inversions. Therefore, this is an urgent problem for them. That is why we are trying to establish a market that allows them to do enough without ridiculous costs being imposed upon the rest of us for environmental conditions that we do not share. Those who read Hansard may judge from the conflicting advice that has most helpfully been given to me in this debate that the kind of compromise that we have reached may be on the right lines.
The speech of my hon. Friend the Member for Birmingham, Northfield (Mr. King) was excellent and full of good sense. He asked me specifically about the fiscal incentives for direct injection diesels. Without breaking the confidentiality rule concerning Council meetings, I am able to tell my hon. Friend what happened. I went in arid batted for this, but it was a difficult case to argue that the privilege of fiscal incentives designed to produce lower-polluting engines should be extended to engines for which we have successfully negotiated derogation from pollution control. It was a bit of a try on, really, and I thought that it was better not to press those negotiations to the limit. It was more important to get derogation for direct injection diesels. In due course the technology will undoubtedly be developed for lower-polluting engines as well as for other admirable aspects. We must allow it to be developed a little further. We should have been pressing the point too far also to ask that at this stage in the development of that interesting technology engines for which we have negotiated derogation should be granted fiscal incentives.
It was a little unfair of my hon. Friend the Member for Portsmouth, North to say that this country has always dragged its feet. Britain pushed forward the discussions on lead in Europe. The speeches of my hon. Friend before 1983 might well have been fairly made. My right hon. Friend the Member for Bridgwater (Mr. King) listened to such speeches and took the lead. He saw the matter through and the hon. Member for Southwark and Bermondsey was generous enough to acknowledge that. We came back with a much better date than many feared we would get for the introduction of cars that can run on lead-free petrol. Even the hon. Member for Southwark and Bermondsey gave me some credit for that.
We are not debating implementation. That is the next matter for discussion. The hon. Member for South Shields was right to point that out. We are debating the fact that we have now described the regulations for a coherent European market that preserves the lean burn route. As a Government, we are not ruling out the oxidation catalyst


and I would not criticise the oxidation catalyst in the same way as I would criticise the three-way catalyst. The oxidation catalyst has simpler and more robust technology, which can work perfectly well with the lean burn engine. As my hon. Friend the Member for Portsmouth, North correctly said, there are costs involved, but we must accept that the great advantage of having maintained the lean burn route is that there are also consumer and energy gains. In the long term I suspect that during the development of the lean burn engine, we may see developments even beyond what can be achieved with the three-way catalyst. That is running a little ahead of present science, but that technology is pregnant with hope for the future and is certainly not limited.
The compromise was agreed by the Community—not just by Britain but by France, Italy and the other car manufacturing countries that were most anxious not to be landed with expensive technologies on small and medium-sized cars that could not be justified. The Community compromise is one that defines sensible pollution controls for that market.

Dr. David Clark: The Minister has come and gone like a yo-yo on lean burn and oxidation catalysts. It would be helpful if he would explain why, in March, he was agreeing to the oxidation catalyst but by July he said that the Government had no intention of setting a standard that would require the use of the oxidation catalyst. The Minister has changed his position on that issue.
I am encouraged by what I thought he said earlier. Is the Minister now prepared to look at the possibility, if necessary, of lean burn plus the oxidation catalyst? The Opposition believe that that would be an important step. We should judge these directives in that context and would like to know when they are to be implemented. I appreciate that the Minister cannot say when they will be implemented, but can he give the House and assurance that the Government intend to implement the directives.

Mr. Waldegrave: The hon. Member for South Shields should judge the directive from two sides. The directive

is designed to achieve two purposes. It should maintain the coherence of the common market in cars that is one of the great triumphs of the European community. That aim has been achieved. The other object is, at the same time, to achieve gains for the environment in individual countries.
The Government's position on implementation has not changed. My noble Friend Lord Brabazon spoke in another place about the three-way catalysts. In the conclusion to the debate, it appeared that he was ruling out all catalysts, but he afterwards made it clear that he did not mean that.
The rules are laid out for the market and each country now has to consider what it will do. One or two countries have made their decisions, but we are not yet in a position to make a decision. We have not ruled out oxidation catalysts or implementing the directive, but we have always said that we will not have the three-way catalyst. We do not think that the environmental pressures in this country are of such crisis proportions that that would make sense. That is a decision that we still have to make. I cannot give the hon. Member for South Shields the date by which that decision will be made. Nothing is ruled out except the three-way catalyst and I hope that that position is clear to all hon. Members.
On that basis, I hope that the House will approve this hard-fought directive. Even my hon. Friends who would have liked it to be harder fought have been generous enough to recognise that more has been done for some of the interests of their constituents than they had expected at some times.
We always have to balance the need to push industry a little with the need not to load too many costs on it. I believe that the directive just about strikes a happy medium.

Question put and agreed to.
Resolved,
That this House takes note of European Community Document No. 7283/85 on motor vehicle emissions; and supports the conclusions reached at the meetings of the Council of Environment Ministers on 28th June and 28th November 1985.

Reprocessing Plant, Dounreay (Inquiry)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lennox-Boyd.]

12 midnight

Mr. James Wallace: I welcome the opportunity to raise on the Floor of the House the terms of reference of the public inquiry into the proposed fast reactor reprocessing plant at Dounreay in Caithness.
In the latter part of May last year, the Parliamentary Under-Secretary of State for Energy announced that Britain would seek to play its part in a collaborative European programme on fast reactors by seeking to have a reprocessing plant sited at Dounreay. On 3 June, the then Secretary of State for Scotland called in the joint planning application of British Nuclear Fuels and the United Kingdom Atomic Energy Authority because he believed that the proposed development had implications of greater than regional importance which he wished to see examined at a public inquiry.
The Secretary of State subsequently appointed Mr. Bell as the reporter, and the date for the inquiry was originally set for 17 February. At a pre-inquiry meeting held on 12 December to discuss procedure and general preparations for the inquiry, the reporter allowed a postponement for seven weeks because of the uncertainty of the applicants about what would be the port of entry for spent nuclear fuel that would have to be transported to Dounreay.
I do not think that anyone who has followed the issue would disagree that there has been general discontent in Scotland and further afield about the remit of the reporter. That discontent led a number of bodies and individuals to seek meetings with the former Secretary of State for Scotland, the right hon. Member for Ayr (Mr. Younger).
In July a petition signed by more than 30 organisations and individuals was sent to the right hon. Gentleman. It sought a meeting, but that was refused. A request for a meeting from two Members of the European Assembly was rejected by the Under-Secretary in a letter in September. I twice formally sought a meeting, along with other hon. Members, not only from my party, to try to demonstrate the broad agreement, particularly on the Opposition Benches, over the terms of reference of the inquiry.
In a letter dated 11 November, the Under-Secretary said:
As the responsibility for the final decision on the application will rest with the Secretary of State, following the inquiry, I do not believe it would be appropriate for George Younger or myself to meet you to discuss issues concerning the case in advance of the eventual decision.
The Secretary of State will act in a quasi-judicial role and to the extent that he might have been addressed on the merits of the proposal, so it would have been proper for him or the junior Minister to refuse to meet delegations to discuss the merits of the case.
There is an important distinction to be drawn between representations on the merits of the proposal and representations relating to the form and the nature of the inquiry. It is on the form and nature of the inquiry that these representations for a meeting were made. The previous Secretary of State for Scotland failed to draw that distinction, as will be evident from the letter I have just quoted, and it is because of that that I have sought to raise the matter in the House.
We have a new incumbent in the Scottish Office who has perhaps the added advantage over the previous Secretary of State in that he is not only a right hon. Member but a right hon. and learned Member. He will note this legal distinction and perhaps be more willing to listen to the representations that have been made about the terms and nature of the inquiry. What is principally proposed by those seeking a wider remit is a joint planning inquiry commission. The basis of statutory authority for referral to a planning inquiry commission, is found in section 45(2) of the Town and Country Planning (Scotland) Act, 1972 which states,
Any of the matters mentioned in subsection (1) of this section"—
that indisputably applies to this application—
may be referred to any such commission under this section if it appears expedient to the responsible Minister or Ministers that the question whether the proposed development should be permitted to be carried out should be the subject of a special inquiry on either or both of the following grounds—

(a) there are considerations of national or regional importance which are relevant to the determination of that question and require evaluation, but a proper evaluation thereof cannot be made unless there is a special inquiry for the purpose;
(b) the technical or scientific aspects of the proposed development are of so unfamiliar a character as to jeopardise a proper determination of that question unless there is a special inquiry for the purpose."

These provisions in the section are fulfilled in this case. The joint planning inquiry commission is provided for under section 47 of the same Act in circumstances where interests in both Scotland and England are affected. Because of the national policy implications, these are United Kingdom considerations and therefore a joint planning inquiry commission is appropriate.

Mr. Simon Hughes: The particular importance is that a decision taken in a planning inquiry about Dounreay will clearly have an effect as a precedent on the prospective applications for developments of similar sites elsewhere on the coasts not only in Scotland but in England. It is not just in relation to this particular inquiry that there is great concern throughout the United Kingdom, but also because it will clearly be used as a marker and a remit for future public inquiries even under technically English as opposed to Scottish legislation.

Mr. Wallace: My hon. Friend has added yet another argument why the joint planning inquiry planning commission is appropriate. In correspondence to me in response to parliamentary questions the Minister has taken the view that the considerations spelt out in the sections to which I have referred, do not apply in this case. This is an application of national and, indeed, international importance. The proposals form part of a joint European collaboration project, the terms and implications of which have never been debated by this House. Unlike the inquiries over the thermal oxide reprocessing plant at Windscale or the Sizewell inquiry, because of the narrow terms of reference imposed on the proposed local public inquiry, there will be no opportunity for objectors or interested parties to assess or question the policy issues underpinning this development.
It has international importance, because, as I discovered on a visit to Norway last year and from other representations which we received from Denmark, there is fear that any liquid emissions or discharges from a


proposed reprocessing plant could, because of tidal currents affect the west coast of Norway and Denmark. It raises issues of proliferation. The Government maintain that there are sufficient safeguards in various international treaties and that there would be no breach of our obligations under the non proliferation treaty.
Writing in the house magazine of the French utilities industry, M. Lammers said that the Superphenix fast reactor in France
will produce in the mantle of its core enough plutonium of ad-hoc quality to make about 60 bombs each year. Under these conditions, Superphenix becomes of course the technical basis of the French nuclear military force.
I shall not go into the merits of that case—although plutonium from the Superphenix will undoubtedly be reprocessed at any such plant. However, an important issue is involved. The Government say that there are sufficient safeguards, but a man involved in the French energy industry says that the Superphenix is implicated in French military nuclear planning.
What about our commitment to fast reactor technology, of which reprocessing is an important and essential part? There has been general understanding that we would not go down the road towards commercial fast reactors without a full-scale public inquiry. It appears that we are now going a long way down that road with only an inquiry with the narrowest of remits.
In view of the low cost of uranium and the great stockpiles of plutonium in Europe, are we making a worthwhile use of our resources in this plant? Before going down the road towards the fast reactor economy, we should bear in mind the comments of the sixth report of the Royal Commission on environmental pollution, which warned against becoming overdependent on an economy based on plutonium before we properly consider the alternatives. We need a forum to consider the role that could be played by alternative energy sources.
I do not expect the Minister to go into the merits of the arguments on national energy policy, but important issues for this generation and future generations must be discussed and taken into account. A local planning inquiry is not a suitable forum to consider those issues fully.
Environmental considerations are causing considerable concern in my constituency, not least because of what happened at the Windscale plant. The criminal operation of that plant by British Nuclear Fuels lead not only to its successful prosecution but contamination of the Irish sea. Until now, the Dounreay establishment has been operated solely by the United Kingdom Atomic Energy Authority, but the present planning application is a joint one by BNFL and UKAEA.
In a letter sent out before the 12 December meeting, the reporter, Mr. Bell, said:
I regard my remit as extending to the consideration of all land use, environmental and safety questions which can be regarded as the foreseeable consequence of approving this development, provided these consequences are not too remote.
How far can these environmental considerations be looked at in a public local inquiry? I do not believe that it will go far enough. Is an accident a "foreseeable consequence"? It is important to have a proper risk assessment of all the possible consequences of an accident or, in these days of sabotage and terrorism, deliberate interference with the plant. Do the environmental considerations extend as far as the level of discharges? It has been suggested that that

is a matter for the Scottish Office, which already determines the level of discharges having regard to internationally agreed acceptable levels. This would exclude any consideration of whether these international levels are acceptable. There can be no safe dose of radiation. It is a matter of subjective opinion—no doubt based on the highest quality scientific evidence—what constitutes acceptable levels. These matters should be open to public debate and scrutiny. Again, a joint planning inquiry commission would refer to circumstances where the
technical or scientific aspects of a proposed development are of so unfamiliar a character as to jeopardise a proper determination of that question unless there is special inquiry for that purpose.
I do not think that it can be reasonably or honestly said that the reprocessing of spent nuclear fuel as part of the fast reactor fuel cycle is a matter which the Scottish Office or indeed Britain is exactly familiar with. I do not think that this type of application is of a familiar character. It is of a unique character and one which can only properly be scrutinised and challenged if one has a special inquiry for the purpose.
Admittedly, there is a plant already in existence at Dounreay, which reprocesses some spent nuclear fuel, but the volume of fuel which would go through the proposed plant is 10 times as much as that going through the existing plant. Although the authorities at Dounreay maintain that they can keep discharge levels down to the present rate, that again is a matter for consideration; and I very much doubt whether proper and effective scrutiny of that claim can be made by a public local inquiry.
Then there is the whole question of transport. The inquiry was postponed because of doubts as to what the port would eventually be. In a comment in the Glasgow Herald of 8 January of this year, Mr. Peter Davies, head of the European demonstration fuel reprocessing plant inquiry team for the Atomic Energy Authority, said:
If British Rail decided to abandon the North Highland line, our plans would fail. There is no way that this inquiry can impose a transport inquiry on us.
So there is this whole question of transport and of the port of entry, particularly from the point of view of my constituents who are worried about the transportation of radioactive material through what I am sure the Minister knows can be a rather stormy Pentland Firth to Scrabster or Wick. It is a matter of considerable importance. In the light of that claim by a senior employee of the United Kingdom Atomic Energy Authority, can the Minister indicate the extent to which transport is a relevant consideration? Is it correct to say that a transport inquiry cannot realy be part and parcel of the local public inquiry which is currently to go ahead?
The further advantage of a joint planning inquiry commission is that the commissioner can commission his own evidence, which can to some extent overcome some of the secrecy which unfortunately has been part of the nuclear authority's approach to the present inquiry, and can also help to overcome some of the funding problems.
As I indicated when I quoted from the Act, it is a matter of whether the Secretary of State considers it expedient. He, one fears, wishes to get a quick answer to this because perhaps of other matters—for example, the French desire to site the reprocessing plant in France. Nevertheless, the whole planning procedure which is meant to be there, particularly for local inquiries, to air the fears and the objections of people, not only local people


but those further afield who have an interest, comes into disrepute if it is felt that the procedure does not match up to the scale and importance of the issue before it.
If our planning procedures do not have the confidence of the people generally, we could be building up for ourselves a considerable amount of trouble in the future.
It may be said that the Windscale and Sizewell inquiries went on for too long. They were not joint planning commission inquiry commissions, and I would invite the Minister to reconsider the matter and to take what would be a unique step in setting up a joint planning inquiry commission. The issues involved are of sufficient national and international importance, and relate to matters of scientific and technical interest which are unique. They could certainly not be described as familiar. They warrant the major step of having a planning inquiry commission.

The Parliamentary Under-Secretary of State for Scotland (Mr. Michael Ancram): I am glad to have this opportunity to respond to the hon. Member for Orkney and Shetland (Mr. Wallace) on this matter, about which we have corresponded on many occasions during the past months.
I shall deal with as many of the hon. Gentleman's points as possible. I must, however, register an apology in advance. Some of the points raised impinge directly on the subject matter of the public inquiry itself. As the hon. Gentleman will know, it is particularly important for me as a Minister with planning responsibilities to refrain from comment on matters which the reporter is charged with looking into, because it will be my duty subsequently to consider his report and to give my view to the Secretary of State about the planning decision. I hope that the hon. Gentleman will recognise my difficult position, and the need for me to exercise great care in what I say.
I should like to recall the events leading up to the inquiry. On 31 May 1985, the United Kingdom Atomic Energy Authority and British Nuclear Fuels plc submitted a planning application to Highland regional council for permission to site the plant, known as the European Demonstration Reprocessing Plant, at Dounreay. In accordance with the requirements placed on the council, the application was notified to my right hon. Friend the then Secretary of State. Shortly thereafter my right hon. Friend announced that he would in due course call in the application for his own decision, and would arrange for a public local inquiry to be held. He asked the planning authority, the Highland regional council, to proceed in the meantime with the initial statutory publicity and consultations. He also asked the developers to prepare an environmental assessment of their proposals to supplement the information which they had already supplied along with their planning application to the regional council.
In September, my right hon. Friend called in the application, as he had promised to do. He made it clear that he had done so because he considered that the proposal could have planning and environmental implications extending within and beyond the area for which Highland regional council was responsible as planning authority—matters which he wished to be examined at a public local inquiry. I am sure that the hon. Gentleman welcomed that action, and the recognition—which did not in any way prejudge the planning merits of proposed development—that those aspects would be of wider than simply local concern. The hon. Gentleman has reflected that

tonight. Following receipt of the applicants' environmental assessment, my right hon. Friend appointed a reporter to hold the public inquiry. He also appointed a technical assessor to assist the reporter in view of the scientific and technical aspects of the proposed development which might need to be considered. The hon. Gentleman has made much of the reporter's terms of reference, which are quite simple. I should like to recall what they are. The reporter was appointed under planning legislation to hold a public local inquiry into the planning application, and to report on the inquiry to the Secretary of State with recommendations, or with his reasons for not making any recommendations. It is clear from the terms of reference that no limitation has been put on the reporter's discretion to examine any matter which he considers relevant to whether planning permission should be granted. That is the question before my right hon. Friend the Secretary of State, and it is for the purpose of helping him to determine that question that the reporter has been appointed to hold the inquiry.
The reporter has subsequently interpreted his remit as covering all land use, environmental and safety questions which are not too remote from Dounreay. He has said that the inquiry will also be concerned with relevant socio-economic issues affecting Highland region and the adjacent islands. At the pre-inquiry meeting held in Thurso on 12 December the reporter also decided to postpone the starting date of the inquiry by seven weeks to 7 April to allow time for the developers to be more specific about their preferred options for the transport arrangements, which, although they are not part of the planning application, are essential to the development. The inquiry will provide an opportunity for all the relevant concerns of the hon. Gentleman's constituents to be considered.
The hon. Gentleman has asked in correspondence, and tonight for the application to be referred to a planning inquiry commission, rather than to be dealt with by normal planning inquiry procedure. Both aspects have been dealt with in correspondence which I have had with him and in replies given to the House, one of which I gave to the hon. Gentleman.
As the hon. Gentleman said, a planning application may be referred to such a commission where it appears to the Secretary of State in considering whether or not to grant planning permission for a proposed development either that a proper evaluation of relevant issues of national or regional importance cannot be made without a special inquiry, or where the technical or scientific aspects of a proposal are of so unfamiliar a character that a proper determination of the case would be jeopardised unless there were a special inquiry. I do not have any evidence that either of these criteria apply in this case. The reporter can consider the technical and scientific aspects of the proposal, and he has a technical assessor to assist him. The hon. Member also mentioned a joint planning inquiry commission. This provision would apply only if there were planning matters involved affecting the responsibilities of planning Ministers in Scotland and England, and in terms of the responsibilities of planning Ministers, it does not apply in this case.

Mr. Wallace: Is the Minister saying that he believes that the technical and scientific aspects of the proposed development are familiar? Does he agree that this is an


unique application and that there is no experience in planning terms of a fast reactor reprocessing plant in Scotland?

Mr. Ancram: I have already said that, having considered the matter, I do not have any evidence that the criteria that the hon. Gentleman mentioned, and which I have repeated, apply in this case. It would have to be on that judgment that such a decision would be made.
The hon. Gentleman also said that, regardless of what inquiry procedure is adopted, he would wish the remit of the inquiry to be extended to consider matters of Government policy. Hon. Members may recall that my right hon. Friend the Secretary of State for Energy wrote on 21 May 1985 to the chairman of the United Kingdom Atomic Energy Authority enclosing a statement of the Government's general policies on the United Kingdom's participation in the European fast reactor collaboration and on the regulatory procedures which would apply to the building of a European demonstration reprocessing plant in the United Kingdom. In making that statement available to this House on 24 May, my hon. Friend the Parliamentary Under-Secretary of State for Energy made it clear that the Government see advantage to the nation and to the European collaboration in siting the reprocessing plant in the United Kingdom but that such siting would be subject to the agreement of our European partners in the collaboration and to the necessary planning, safety and environmental consents being granted.
That statement is available to the inquiry, as is a statement of the Government's radioactive waste management policy. Government witnesses will be available at the inquiry to clarify, if need be, these matters of Government policy. It is another matter to suggest that Government policy should be looked into by the reporter as part of his remit. I am afraid that I am not able to agree with the hon. Member's suggestion in that regard. My

right hon. Friend the then Secretary of State made it clear that the inquiry will not be extended to an examination of the merits of these matters of Government policy. The purpose of the inquiry is to consider the simple question of whether planning consent should or should not be given for the proposed development. The reporter has indeed made it clear in his letter of 9 January to parties to the inquiry that he will make his recommendation on the basis of planning considerations, including the safety aspects and does not consider that there is any presumption that the national interest would justify automatic approval.
The inquiry will also have before it statements of the regulatory procedures governing radioactive waste management, the licensing of nuclear installations and the transport of radioactive materials prepared respectively by Her Majesty's industrial pollution inspectorate, Her Majesty's nuclear installations inspectorate and the Department of Transport. Witnesses will be available to give evidence at the inquiry on these matters.
The hon. Member mentioned nuclear discharge and safety and asked whether they could be considered. The reporter will be able to consider the safety and environmental aspects of the proposal. The regulatory bodies that I have mentioned have made statements available to the inquiry, and they will provide witnesses.
The reporter has asked the applicants to clarify certain aspects of the transport arrangements, although they do not form part of the planning application. It will be for the reporter to determine how far he needs to examine the proposed transport arrangements. Further information and evidence from these and other parties to the inquiry will no doubt become available in due course. I have every confidence that the inquiry will provide an opportunity for a wide-ranging examination of all of the issues relevant to whether planning permission should in due course be granted.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Twelve o'clock.